It’s not magic: Save what you can and retire as debt-free as you can be

Michelle Singletary
Columnist August 20, 2011

During a recent online discussion, a lot of people had thoughts about retirement. One had me laughing out loud.

“I think my wife and I have found the answer to having enough money at retirement,” a reader wrote.

Michelle Singletary writes the nationally syndicated personal finance column, “The Color of Money.” View Archive

I bet you’re intrigued. I was.

The gentleman went on to write: “Experts say you need 70 percent of your working income in retirement. So I am quitting and letting my wife work. Now we need $35,000 less a year in retirement and our savings are now enough.”

That definitely deserves a big LOL.

“That’s just my way of saying no one knows for sure what you need and there are no magic formulas,” this very smart guy added. “Save, and be debt-free when you retire.”

What I loved about his humor is the recognition that all the scrambling to save for retirement is driving many of us nuts. Save what you can. But most important, retire with as little to no debt as possible.

Anyway, here are my answers to a few retirement questions that came up during my chat:

“I got some sort of yearly statement from Social Security listing my years of employment, how many quarters I had contributed, and an estimated amount I’d be eligible for if I take my benefits at 62, my full retirement age, and at 70. I never thought about retirement until recently. I never really paid attention to the statement. But upon examination, I notice that I’m only being credited with about a third of the years I actually worked. Is it possible to get this corrected with Social Security?”

People have been getting a statement from Social Security and many, like this person, probably have ignored them. The statements were sent to non-beneficiaries 25 and older each year about three months before their birthday. Those statements contained vital information, including a record of your earnings history, an estimate of how much you have paid in Social Security taxes, and estimates of benefits you and your family were eligible to receive.

But in April, the Social Security Administration stopped mailing out the annual statements. In testimony to Congress, Social Security Commissioner Michael J. Astrue said his agency was mailing 150 million Social Security statements a year. Social Security says it could save as much as $30 million a year by suspending the mailings.

For fiscal 2012, which begins in October, Social Security will resume mailing the annual statements to people 60 and older, a spokeswoman said. For all other workers, the agency is looking into providing the statements online sometime next year. You may be able to an estimate of your retirement benefit by going to www.ssa.gov and searching for “Retirement Estimator.”

Okay, so what if you find that the information on the statement you did get this year is incorrect? (By the way, hopefully you kept last year’s statement, so even if you don’t receive one this year you can double-check the information.). You should be checking. This information is vital to your retirement planning. The amount of the Social Security benefit you can get depends on the amount of earnings reported to the agency. If your earnings record is inaccurate, that could mean lower benefits.

One of the reasons your record could be incorrect is that you got married or divorced and changed your name but never reported the change to Social Security.

If you discover income information missing on your statement, you’ll need to find some proof of what you earned. This could be a W-2 form, an old tax return or a pay stub. After you have gathered your proof, contact Social Security. If you can’t find proof, you may still be able to get the record corrected by providing Social Security with the dates you worked and your employer’s name.

Finally, a reader wanted to know about using retirement money to buy a car.

I will soon need to buy another vehicle. I have a 1997 Toyota Camry. I am a retired federal employee. I don’t want monthly payments forever and am thinking about getting funds from my 401(k) to pay for it. Is this a good idea?”

I’m right back where I started. Remember, the less debt you have in retirement the better. So I wouldn’t borrow to buy a car. Depending on your tax situation, I would first use savings outside the 401(k). If the 401(k) money is your only savings, use some of that money and get the most affordable and reliable used car you can find.

Readers can write to Michelle Singletary c/o The Washington Post, 1150 15th St. NW, Washington, D.C. 20071. Or by e-mail: singletarym@washpost.com. Personal responses may not be possible. Please also note comments or questions may be used in a future column, with the writer’s name, unless a specific request to do otherwise is indicated.

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