ABSTRACT
Fred Sandoval just turned 62 and has decided to apply for Social Security since he and his wife, Claudia, need the income now. However, since they will be receiving benefits early, Fred’s benefits will be reduced by 20% and Claudia’s spousal benefit by 25%. Claudia has no private retirement plan. Their total Social Security income will be under $1,500 per month. This will represent the lion’s share of their income. The couple owns their home, in which they have approximately $124,000 in equity, but they still have 5 years on their mortgage, which will consume much of their monthly income. Fred has less than $70,000 in an individual retirement account, and the couple has $15,000 in personal savings and a checking account. They also have over $20,000 in high-interest credit card debt. Fred intends to continue working as a mechanic as long as he can, but given his age and a serious back problem he will only be able to work on a limited basis. The couple will not be among those who take cruises, contribute to charities, and help their children and grandchildren with college educations and home purchases. Their retirement years will be characterized by limited consumption. One wonders how they ended up in this predicament, which is, in fact, quite common. To answer that question we must go back a few years.
