Q: I’ve heard it suggested that I might need a million dollars to retire comfortably. I wrote off Social Security years ago as any means for retirement income. My focus has been primarily on having zero debt and owning real estate, primarily rental property. I’ve just turned 60 and I’m in very good health. I have paid off one rental property, a single-family home with a net of about $900 a month. This month, my own home will be paid off. My wife, four years younger, is happily employed with a good salary. Our two sons are grown and married, both with fine college educations and good jobs. I am employed with a good salary and a company car. My plan leading into a possible retirement: Save up a good down payment for a downsized home; buy the home and pay it off in three years; at move-in time, lease my current home. With that in place, I’ll be 64. I will have net rental income of about $2,000 a month and expect to have about $400,000 in my 401(k). My wife will have a much smaller amount. I’ll probably have a used-car payment and groceries. I’ll sign up for Social Security whenever I start needing the income — should it still exist. So, do I still need the million dollars?
A: How much money you need to save for retirement depends entirely on the standard of living you plan to have. And, trust me, a loosey-goosey estimate that figures on “a used-car payment and groceries” won’t do. You will need a meticulous list of the spending you expect to continue in retirement. You don’t want to be like the recently infamous budget exercise for McDonald’s employees that forgot to include little items like food and gas. And about that million: by an index I call “Life of Riley,” it would now take Social Security and about $1.1 million in retirement savings to provide an income of $74,000 a year — an amount that is more than about 75 percent of all households have.
So, if you own your house, have no debt and include your likely future Social Security benefits, you may already be in good shape. Or not. You can get some idea by checking your annual statement and benefit estimates with Social Security.
This would also be a good time for you to review your ideas about Social Security. The view that it will not exist is extreme. The reality is that Social Security faces funding issues, but they are minor compared to the onrushing unfunded liabilities of Medicare. Many believe, and I think rightly, that we can cope with the financing issues of Social Security. I haven’t met or interviewed a single knowledgeable person, however, who believes that Medicare is sustainable.
Q: About the idea of deferring Social Security, our situation is somewhat different since I’m a retired Texas teacher with a pension. I was at home when my children were young, so my annuity will never be very substantial. I will never be eligible for my husband’s higher monthly payment through Social Security. Does it make sense for us to take his Social Security next year when he turns 66 rather than delay and risk my never getting any of that income if he dies before I do?
A: The only way to answer this with any accuracy is to use your personal income figures and estimated dates of retirement, etc. Fortunately, you can now do this on your own with a free online calculator: www.maximizemysocialsecurity.com. It is based on the most sophisticated and complete financial planning calculator that I know of — called ESPlanner.
You can enter figures for free, or you can pay $40 for a one-year license that will allow you to store your earnings and other data on the maximizemysocialsecurity.com website. This calculator can give accurate calculations that consider both the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).
(Full disclosure: Maximizemysocialsecurity.com is based on the same ESPlanner software, created by Boston University economics professor Laurence J. Kotlikoff, that was the basis for a book on financial planning that I co-authored with professor Kotlikoff. The book is Spend ’til the End (Simon & Schuster, 2008). I am a big fan of this software, but have no financial interest in it.)
Questions about personal finance and investments may be sent by email to firstname.lastname@example.org.