John Oliver's exposé and advice on retirement plans

A few weeks a couple of friends of mine asked me for some investment advice about their retirement savings, and if I'd known about this video I would have just told them to watch it. I highly recommend it.


I'm glad to say that what I told my friends is in keeping with the advice in this video. My only area of disagreement has to do with whether it's all that good an idea to invest in bonds. Bonds are less volatile than other investments, but they are a good deal harder to understand, and not only are interest rates are currently very low, any bonds you own will fall in market value should interest rates rise. (That's because the bonds you own aren't paying the higher interest rates.)

For many people the simplest option is to invest in a very low-cost fund associated with a target retirement year. These are available from all the large mutual fund companies, but I personally use Vanguard because their fees are very low, and Vanguard investors actually collectively own Vanguard. If there's not actually a fund for the specific year you plan to retire, choose one for a nearby year. I would lean toward a later year rather than an earlier one, in part because people often retire later than the originally intended to.

Other free advice: If you're single and don't need the money to live on, postpone taking Social Security retirement benefits until you reach 70. That's because monthly benefits are greater the more you delay starting them. Of course, by delaying you're also forgoing all the monthly payments you could have been collecting, and it takes years for the higher payment levels to catch up with that. But life is uncertain, and living a long time carries a risk of needing more money to deal with personal needs late in life. It's best to spend down other retirement assets and save Social Security for last.

If you're married, divorced, or widowed, things are more complicated, and you might want to check out the Maximize My Social Security service that for $40 will do the calculations for you. Full disclosure: I used to know Laurence Kotlikoff, the owner of the company in question, very slightly, but my recommendation isn't based on that, and I don't get anything in return for mentioning it. There are similar services out there but I think his is the best of the ones I've looked at.

(By the way, Social Security is not about to go bankrupt and the problem it does have are pretty easy to fix. Even if Congress were to do nothing at all and the Trust Fund runs completely empty in the mid-2030s, the worst case -- absent an asteroid strike, nuclear war, or a Donald Trump presidency -- would be an across-the-board reduction in benefits of twenty-some percent. If you don't see how that's possible it's probably because you don't realize that the Trust Fund exists to make up the difference if Social Security taxes aren't enough by themselves to pay for scheduled benefits. Contrary to popular misconceptions, Social Security has always been as pay-as-you-go system whose Trust Fund is invested in U.S. government bonds; there was no nefarious congressional "raid" on the Trust Fund. For more on myths about Social Security see these other posts on this blog.)

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