By Laurence Kotlikoff 

Originally posted at The Seattle Times, July 2017

Frank and Sharon Sawyer are an entirely made-up 70-year-old retired couple living in Connecticut. Their financial situation looks pretty good, but it’s actually pretty bad. I’m going to see if I can help them with some money magic.

The Sawyers seem well-off. They were able to accumulate $300,000 in regular assets and $300,000 each in 401(k) accounts. All their investments are in safe assets, which they expect will earn 1 percent above inflation. Frank and Sharon also receive $2,500 per month in Social Security retirement benefits.

The Sawyers own a $500,000 house. They have a 20-year $200,000 mortgage, with a monthly payment of $1,200. Property taxes, homeowner’s insurance and maintenance come to an additional $1,250 per month.

When I run the couple through www.basic.esplanner.com, my company’s free online software, things look fine. (Note: I work for my company for free — to pay my employees more and keep our software prices low.) The Sawyers can spend $59,779 per year, measured in today’s dollars, straight through age 100, if they both make it that long. The $59,779 is their discretionary spending budget. It’s after meeting all their fixed costs on housing, federal personal income and Connecticut state income taxes, and paying their Medicare Part B premiums. MORE