Retirement planning advice that's effective

I have been posting about retirement planning and doing some reading about it, as I think younger folks should start planning, but good advice is hard to find. The following article has some interesting advice and so I thought I would share. The article is by  Steve Vernon and can be found here

(MoneyWatch) That sound you hear is not me kissing up to my boss at CBS MoneyWatch, executive editor Jack Otter, as I write complimentary things about his new book, Worth It ... Not Worth It? Simple and Profitable Answer's to Life's Tough Financial Questions.

No, the sound you hear is the money you'll be siphoning from banks, insurance companies, car manufacturers, home contractors, salespeople of all types, expensive health clubs, and attorneys. Then you'll deposit the money you've saved in a low-cost index fund that will appreciate to gazillions by the time you retire. But you've got to read Jack's book to find out just how to turn your savings into a stash of cash.

Jack's chief premise is that for the vast majority of your financial needs, the simpler, less confusing, and cheaper answer is the right one. (I agree, and I subscribe to this philosophy in most of my retirement planning posts at CBS MoneyWatch.) Throughout his new book, Jack explains how to get the most value from your purchases while you're working; that frees up more money to save for retirement, which you'll do by investing in a low-cost, balanced mutual fund. That's certainly a simple yet effective formula for financial success in life.

Since my beat is retirement, I took particular interest in Jack's recommendations for assuring that your golden years won't rust out. Let's take a look.

The first step -- and it's a critical one -- is to save 'til it hurts. Use an online calculator to estimate how much you'll need for retirement. Several surveys show that people just aren't saving enough for retirement, and, instead, are only guessing at how much they'll really need. Result: They're guessing way too low. Jack recommends putting as much away in savings now -- even if that means giving up some of the things you really enjoy -- in order to be able to afford retirement later.

Now let's look at some basic retirement planning questions that Jack answers and whether I agree with his philosophy or not.

Save for your kids' college or for your retirement?
Jack's answer: Retirement, although if you're clever, you can save for both.
Check. Even if your kids need to take out student loans to pay for college, that's a better choice than having to move into your child's guest room down the line because you didn't save enough for retirement. Information in the book describes how to best save for your children's college costs.
Social Security at age 62 or 70?
Jack's answer: Age 70.
Check. By putting off taking your Social Security benefits until you're 70, you'll most likely increase your lifetime payout and improve the financial status of your spouse if you pass away first.

Your own Social Security benefits vs. your spouse's?
Let's elaborate on this question. Should your spouse take the Social Security benefits based on your earnings record, or based on your spouse's earnings record? Jack's answer is "both." By making use of the "file and suspend" maneuver, you can maximize your and your spouse's lifetime payout.
Check. This is another great way to get the most from your Social Security benefits. Click on the link to my post below for details on this strategy.

Fixed annuity vs. variable annuity?
Jack's answer: Fixed annuity.
Check, although Jack limited his comparison to variable deferred annuities that typically have high expenses and commissions. There's a little-known immediate variable annuity from Vanguard that's a good deal for those who want to take some risk in the stock market for the potential to realize increases in their retirement paycheck. But it's not a simple product, so it doesn't necessarily meet Jack's criteria.
You can buy low-cost annuities through Vanguard's website, using the annuity bidding platform from Hueler's Income Solutions. It's the best way to buy fixed or inflation-adjusted annuities, and you won't be dealing with insurance agents. It's worth considering to have a lifetime retirement income.

Fixed annuity vs. managed payout fund?
Jack's answer: Fixed annuity.
Check, but don't put all your retirement savings in an annuity. You'll want to invest some money in a diversified portfolio of low-cost index funds, which Jack also recommends.

Roth IRA vs. traditional IRA?Jack's answer: Roth IRA.
Partially agree. Jack's thought is that if you save the same amount of money in a Roth IRA that you would have saved in a traditional IRA, then you prepay your income taxes with other money that you might otherwise have just spent. This can leave you more money in retirement. Good point.
I also agree that the Roth IRA vs. a traditional IRA decision is a bet on whether your income taxes will be lower or higher in retirement, and that it may be hard to accurately guess your income tax rates in retirement. But for people currently in their 40s and 50s who are in their peak earning years, I still think it's a pretty good bet that their income tax rates will be lower when they retire. If this describes your current situation, you can get the best of both worlds by using a traditional IRA; then, estimate how much in income taxes you'll save now and add that amount to your retirement savings.
OK, so I had to disagree on one point, just to prove I'm not a total suck-up!

The rest of Jack's book offers great advice on getting good value on insurance, spending, and saving, and it gives good advice for people of all ages. I'll be giving copies of his books to my kids. Ooops - there goes that sucking-up sound again!

Editor's Note: MoneyWatch Executive Editor Jack Otter did not assign or edit this article.