If you’re going to read just one financial book this year, read “Money Magic: An Economist’s Secrets to More Money, Less Risk and a Better Life” (Little, Brown Spark) by well-known economist Laurence Kotlikoff, who also co -authored the definitive book on Social Security, “Get What’s Yours.” Kotlikoff has the extraordinary ability to make complicated money matters understandable — and to debunk the lures of Wall Street and the financial planning community.
Kotlikoff is a financial do-gooder, and he has done his best work in the just-released “Money Magic.” Let me give you just a few of the highlights in the hope that you’ll want to read his pithy and personal explanations of how the financial world really works. This book will create “Aha!” moments for readers of all ages.
For instance, did you ever want to tell your child or grandchild that it’s insane to take on student debt to get a degree in a field that can never repay the debt plus interest? It’s just common sense, of course. But no one wants to spoil their children’s dreams of a career in fine arts or tell them that entry-level PR positions won’t help repay student loans.
Kotlikoff shows you how to get the facts about careers that have increased earnings potential based on demographic changes such as aging. To avoid being outsourced by a robot or offshored in the next economic cycle, he advises looking in the fast-growing health care industry — or even becoming a mortician!.(You’ll get used to his sense of humor, based on fact! ) He correctly notes that plumbers will always be in demand.
Here’s another chapter that might not seem politically correct but makes tremendous financial sense. Read his arguments by him in the chapter called “Marry for Money.” This chapter is too much fun to spoil with a description. Just let me say that I knew I heard this advice before — from my grandmother!
The chapter titled “Get House Rich” explains the long-term impact of deciding where you will live — and how the money you don’t spend on housing can be leveraged for your future financial security. Creative ideas to make sure you understand the true cost of your housing decisions may change your perspective — from moving back home with Mom and helping her save money on repairs (while you save on rent) to choosing a housing location far from the trendy but expensive cities. Spending less on housing now, can raise your standard of living significantly over your lifetime.
Of course, there is a concise and yet detailed chapter on the “traps” of Social Security, and the importance of waiting as long as possible to take benefits. For everyone who has ever argued that they “want their Social Security now,” here are the factual and mathematical reasons to wait. And there are important tips for complicated decisions that spouses can make to maximize their lifetime benefits.
Not only does Kotlikoff call out Social Security for its mistakes in advising those who come to them for advice, but he calls one aspect of Social Security a “scam.” He seems Social Security has been calling people who are waiting to take maximum benefits at age 70 and offering them a few months of payments in advance, just to start just before age 70. That enticing offer costs a permanent 6.7% benefit loss over the rest of your life!
Note: If you want to get correct answers about your Social Security decisions before you make a costly lifetime mistake, Kotlikoff’s website MaximizeMySocialSecurity.com has helpful and accurate decision-making software you can access for $40.
Kotlikoff’s real target is the financial planning industry. He reveals the costs and motivations of Wall Street, which now tries to accumulate assets and charge fees. Why else would a planning firm advise you to take Social Security early (forever limiting the value of your biggest retirement asset) while taking your rollover money to “make it grow”?
If you are ready to make your own smart planning decisions, Kotlikoff has another website, Maxifiplanner.com, with tools for individuals or professionals.
From mortgages to student loans, from calculating the true cost of divorce to understanding the real risk of stocks, “Money Magic” has the answers.
And the most amazing thing is that it’s not magic at all. It’s just the cleverly explained reality of the economics behind your most important money decisions. And that’s The Savage Truth.
(Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” Terry responds to questions on her blog at TerrySavage.com.)