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Letters: Do retirement calculators work?

A U.S. Postal Service letter carrier prepares to place letters in a mailbox.

Guest host and L.A. Times consumer columnist David Lazarus tackles your retirement-related questions this week.

Molly from Washington, D.C. called to ask about her parents' retirement plans.  In order for Molly's folks to bolster their retirement fund, they are trying to buy a two-family rental property. Her parents have asked her and her husband to co-sign the mortgage because, on paper, their debt-to-income ratio has maxed out. Molly and her husband don't have to put in any money and wouldn't take any of the rental income. What implications might co-signing have?

"Co-singing is a little bit of a misnomer. What you're doing is co-borrowing. Keep that in mind because all of the responsibilities and accountability that comes with the loan also rests with the co-signer. You need to be aware of that because if, god-forbid, something happens to your parents, your name is now on the bottom line. And the bank will come after you for this. That's something very important to keep in mind. A lot of financial experts say you should be very wary of co-signing a loan, even with a loved one, because of this. It's going to get you on the hook as well. There are some other implications. For example, if you co-sign a loan for your parents, that's going to end up on your credit report. If your parents ever miss a payment, that will affect your credit file. So you just don't want to be connected in that way," says Lazarus.

Mark from Ashburn, Va., was recently on CNN's website using their retirement savings calculator to see how much he and his wife would need for retirement. After putting in the numbers, it said he would need $3.1 million by the time he retires. Is he really going to need that much to retire and should he bother with these calculators?

"I've done the same thing. I've run these numbers. I also need millions of dollars to retire," says Lazarus. "When it comes to retirement, you're very smart, first of all, that you're just anticipating some of the costs that are coming down the freeway at you. These retirement calculators are a good thing if for no other reason than they just get you thinking about some of the stuff you should be prepared for. Generally speaking, a lot of experts say when you're in your sunset years, you should need about roughly 70 percent of your current income on a monthly or an annually basis to cover your nut. That's kind of a funky way of looking at it because your expenses might change. You might pay off your house, for example. You might not have kids who have any requirements any more. So the whole 70 percent of income thing should be taken with a grain of salt. When you run a calculator like you did, that shows you're going to need millions of dollars that you're not going to have, that's probably what it is reflecting."

For a more accurate read on retirement, Lazarus recommends calculators that consider expenses as well.  "If you go the Motley Fool website, they have a retirement calculator that looks at just that -- expenses. That will help you get a sense of what you're really going to need in your pocket when you get into your dotage," he adds.

For more advice, including suggestions on how to diversify your investments, click play on the audio player above.

Here are the links David mentioned:

About the author

David Lazarus is an American business and consumer columnist for the Los Angeles Times.
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So often the advice regarding co-signing (as opposed to "co-singing") is to not do it, I don't think what to do to protect oneself if co-signing has been adequately addressed. Molly indicated in the podcast that she would still be co-signing and given that she needs more direction.

We do not know Molly's family situation, if her parents have a will and if she has siblings who will do the right thing and give Molly the full share of the house sale if it needs to be sold when her parents die. So Molly needs to co-own the rental property to protect herself if her parents cannot pay off the loan. That gives her the security she needs to sell the home if she needs to to pay off that loan. She needs to find out what documents her state requires her to file so that if her parents die, the ownership of the house transfers to her and only her and not her parents' estate. If her parents have other children and want to make sure things are split evenly, they can handle that in their will. Of course, then you can answer her original question about the tax implications: She is liable for property taxes (her parents should be paying that), and she will likely not be liable for rental property taxes because she is not receiving income (her parents are). But given all the complications she is creating for herself by co-signing, she should visit a lawyer before signing anyway.

@proxli -- this is Molly. I appreciate your comment, as David did not quite answer most of my concerns. Just to clarify: our names will be on the deed, so we would have the option of selling if the worst were to happen. We also do intend to speak with a lawyer very soon. Thanks for the advice.

"co-singing"?
"annually basis"?

Maybe you need a proofreader.

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