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The bride and groomSecrets To Agreeing On A Happy Financial Life Together

by Alan Lavine and Gail Liberman

MFI presents excerpts from Dearborn Financial Publishing's new book, Love, Marriage, And Money, by Alan Lavine and Gail Liberman, two veteran mutual fund writers. Copyright 1998. Reprinted with permission. To order a copy of Love, Marriage, And Money, visit our online bookstore.

Part II
Part I

He Says We Need This Much. She Says That Much.

Now that you have a feel for the concept of investing, it's time to consider the sad saga about retirement. Most of us will have to work past age 65 to be able to retire. Don't expect things to get any cheaper by that time either. In fact, just the opposite is likely to happen. If inflation grows 5 percent a year, $60 worth of groceries today should cost $120 in 20 years. Then, of course, there are all those who predict the doom of what could be our one and only safety valve--Social Security. Even Uncle Sam projects that the Social Security system will be paying out more than it is taking in by the turn of the century.

Now, we don't like to be too pessimistic, but it could well pay to start agreeing about ways to save for retirement early on. That might not be easy when your mailbox constantly is being flooded with catalogs from Bloomingdale's, Saks, and Macy's. So let's cut through the clutter and get down to dollars and cents.

HOW TO COMMUNICATE
* * * * *

To make your retirement together more pleasant, resolve to make the following pact:

  1. Start discussing how you both feel about retirement. At what age would each of you like to retire? Will one or both of you continue to work? This will help give you an idea of how much time you have and how much money you'll need to put away.
  2. Own your own home if possible. By the time you retire, your home should be paid off or nearly paid off, cutting down on a good chunk of your living expenses.
  3. Determine exactly how much you'll need to retire at the age you've each determined you want to retire. We'll show you exactly how to do that later on in this chapter.
  4. Figure out how much you'll each need to put away monthly to meet that goal. Again, read on for help with this calculation.
  5. Start early. Your retirement should take priority over funding your children's college education and other objectives.
  6. Periodically assess your progress toward your retirement goals.
  7. Regularly analyze your spending to see where you can cut your expenses and reroute savings to retirement.

* * * * *

What Social Security Brings to the Table

Today, Social Security replaces about one-third of your income. Unfortunately, we'll probably need about 70 percent of our current income when we retire to maintain our standard of living.

What you might run up against is a gap between your Social Security income and income from any pension or retirement plans you have. This is the amount you'll need to save on your own.

As of this writing, the maximum amount a wage earner at age 65 could receive monthly from Social Security was $1,326. A widow or widower receiving funds from a spouse's account would get the same. If however, you begin to withdraw your money early--at age 62 to age 64 1/2-you'd get a lot less. A 62-year-old wage earner would get a maximum of about $1,061 from Social Security, or 80 percent of what he or she would have gotten at age 65. A widow or widower, collecting on a spouse's account would receive 71 per cent or $751.

As we said earlier, obtain an advance estimate of your benefits by calling the Social Security Administration (800-937-2000) and requesting form SSA-7004. You also can get a copy at your local Social Security office.

Think you'll need more than the amount Social Security is apt to provide? Figure 10.1 shows what you'll have to sock away each month just to get an   extra $100,000 at retirement--assuming the investment grows at an annual rate of 8 percent.

A worksheet later in the chapter will help you figure out more specifically how much you're likely to need to save to fill the gap. As you can see, the earlier you start, the less you have to put away each month.

Figure 10.1: What To Invest To Have $100,000 At Retirement
Years to Retirement

10
15
20
30

 Monthly Investment

$575
307
219
114

Next: "Sorting Through The Gobbledygook."

Alan Lavine and Gail Liberman are husband-wife personal finance columnists, journalists and authors. They are the authors of "The Complete Idiot's Guide to Making Money with Mutual Funds," published by Alpha Books. Their columns appear in newspapers throughout New England and the Southeast, as well as online. Their commentary on mutual funds and personal finance is carried by 200 radio stations nationwide every Sunday over Business News Network's Charles DeRose Financial Advisor Show.

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