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 noted economist Laurence Kotlikoff, who also co-authored of the definitive book on Social Security, “Get What’s Yours.” Kotlikoff has the extraordinary ability to make complicated financial matters understandable and to discredit the lures of Wall Street and the financial planning community.
Kotlikoff is a financial do-gooder, and he’s done his best work on the just-released “Money Magic.” Let me give you some of the highlights in the hope that you’ll want to read his concise and personal explanations of how the financial world really works. This book will create “Aha!” moments for readers of all ages.
For example, have you ever wanted to tell your child or grandchild that it’s crazy to take on student debt to get a degree in a field that can never pay off 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 public relations positions won’t help pay off student loans.
Kotlikoff shows you how to learn about careers that have higher earning potential based on changing demographics, such as aging. To avoid being outsourced by a robot or offshored in the next economic cycle, he advises looking into the fast-growing healthcare industry, or even becoming an undertaker! (You’ll get used to his fact-based sense of humor!) He correctly points out that plumbers will always be in demand.
Here’s another chapter that may not seem politically correct but makes tremendous financial sense. Read their arguments in the chapter called “Marrying for Money.” This chapter is too much fun to spoil with a description. Just let me tell you, I knew I had heard this advice before, from my grandmother!
The chapter titled “Get a Rich House” explains the long-term impact of deciding where you will live and how the money will be invested. do not spend in housing can be leveraged for future financial security. Creative ideas to make sure you understand the true cost of your housing decisions can 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 away from trendy but expensive cities Spending less on housing now can significantly raise your standard of living over your lifetime.
Of course, there is a concise but detailed chapter on the “traps” of Social Security, and the importance of waiting as long as possible to collect 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 spouses can make to maximize their lifetime benefits.
Kotlikoff not only criticizes Social Security for its mistakes in advising those who come to them for advice, but calls one aspect of Social Security a “scam.” It appears that Social Security has been calling people expecting maximum benefits at age 70 and offering them a few months of advance payments, only to start just before age 70. That tempting offer costs a permanent loss of benefits of 6.7% over the rest of your life!
Note: If you want to get the right answers about your Social Security decisions before you make a costly mistake for life, the Kotlikoff website MaximizeMySocialSecurity.com has useful and accurate decision-making software that you can access for $40.
Kotlikoff’s real target is the financial planning industry. He reveals the costs and motivations of Wall Street, which is now trying to accumulate assets and collect commissions. Why else would a planning firm advise you to take Social Security early (always limiting the value of your largest retirement asset) while taking your transferred money to “grow” it?
If you’re 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 true risk of stocks, “Money Magic” has the answers.
And the most surprising thing is that it is not magic at all. It’s simply the cleverly explained reality of the economy behind your most important money decisions. And that is The Wild Truth.
(Terry Savage is a registered investment advisor and the author of four best-selling books, including “The Savage Truth on Money.” Terry answers questions on his blog at TerrySavage.com.)
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