The Sandwich Generation

by
Laurence J. Kotlikoff

I’m with you. I’m 57, face two college tuitions, spend time and money helping an older parent, and worry, particularly of late, where my investments are heading. But I’m also an economist with all the answers, right? Wrong. But I can suggest a few things.

First, the goal is not to work like crazy, save every penny, and drop dead at 65. So forget the astronomical saving targets your planner is setting and the high-fee, high-risk securities he’s peddling. The goal is a stable living standard. Consumption-smoothing software can help you determine that living standard and spend ‘til the end.

Second, maximize your spending power. Get paid what you’re worth. Move to a low-tax state. Buy inflation-indexed annuities. Shack up (two live cheaper than one). Fire your broker, and buy low-cost index funds. And pay off your mortgage -- the safest and cheapest way to invest.

Third, beat Uncle Sam at his game. Take Social Security at age 70, use Roth saving accounts to avoid tax hikes, and time your retirement account 401(k) withdrawals to minimize taxes.

Fourth, inflation is coming! Dump your long-term bonds, and make sure your mortgage is fixed.

Fifth, price your passions. Understand the living standard costs of retiring early, redecorating your house, buying your dream boat, getting divorced, etc. And then make the life-style choices with the biggest bang for the buck.

Sixth, protect your living standard. Switch to a low-stress job that lasts longer. Don’t count on dying on time; plan to live and spend to 100. Make sure you have enough life insurance to sustain survivors’ living standards. Plan for huge Medicare premiums and out-of-pocket medical costs. Take a careful look at long-term care policies. If you invest aggressively, spend defensively. Stocks can be very risky, as we’ve seen. And holding stocks longer does not guarantee higher returns. Treasury Inflation Protected bonds can help you play it safe.

Seventh, focus on what really counts -- your overall living standard risk, not your portfolio risk.

Eighth, ignore convention financial advice. It’s geared to pick your pocket and is directly opposite to what economics recommends.