“In a time when we are constantly being told that we are living so much longer than we used to, it may be hard to believe that the average person has little better than a 50-50 chance of making it from age 50 to age 70 without dying or incurring a critical illness.” – Fred Vettese, retirement expert, author, The Essential Retirement Guide – A Contrarian’s Perspective.
If that doesn’t hit home, other things in The Essential Retirement Guide probably won’t either.
We all know a healthy lifestyle can materially affect how long you may live but the reality is: bad things happen to good people. Retirement planning extends far beyond how much money you need to sock away for your golden years, or how you intend to manage your asset allocation in retirement. It’s a fundamental shift for most adults that I believe, are probably not mentally ready for let alone financially prepared for. This is what I liked about The Essential Retirement Guide. Although this book is very much focused on the financial-side of retirement it does offer some stark realities about longevity and makes you reassess what you’re really saving and waiting for.
My review today will walk you through some of the chapters in this book and include some points that resonated with me. At the end of this post, I’ll give you a chance to win a copy of The Essential Retirement Guide.
Chapter 1 – The Road to Retirement shares six simple steps to success but also lists detours to avoid, if at all possible. For the curious, the six recommended steps are:
- Save 10% of your pay each year.
- Invest it in low-cost pooled funds, weighted towards equities.
- Keep the asset mix the same, through good times and bad.
- Apart from the mortgage, avoid going into debt.
- Pay off your mortgage by the time you retire.
- Buy a life annuity at retirement.
Chapter 2 provides Doubts about the 70% Retirement Income Target. Vettese challenges the notion you need ~70% of your final salaried income for retirement expenses and believes you can likely get by with much less.
Chapter 3 – Homing in on the Real Target and Chapter 4 – A New Rule of Thumb use Vettese’s thesis in Chapter 2 and explains why you can likely get by (and thrive) on 50% or less of your final salaried income for retirement expenses, using a few case studies.
Chapter 5 – Quantifying Your Wealth Target suggests based on our low-interest-rate environment, you should consider lowering your portfolio’s projected investment returns in the coming decades AND also increase your equity to bond asset mix.
Chapter 6 explains Why Interest Rates Will Stay Low (And Why You Should Care) and offers some investment advice about what you should do about it.
Chapter 7 highlights How Spending Decreases with Age citing “By 84, spending in real terms is 23 percent less than it was at age 62.”
In Chapter 8 – Death Takes a Holiday Vettese looks at mortality rates and while “74 is the new 60” for many of us going-forward it also won’t apply to all of us – so you can use Chapter 9 for Estimating Your Own Life Expectancy.
Chances are Chapter 10 – Long-Term Care (LTC) might be in our collective future but this doesn’t mean Paying for Long-Term Care (Chapter 11) is wise in the form of any LTC insurance premiums, for many reasons.
Chapter 12 helps savers Put It All Together by incorporating longevity risk, inflation risk, and buffers – encouraging this: “You will want to go through the process of determining your wealth target more than once in your life, starting perhaps in your late 30s or early 40s and repeating the exercise periodically until the point of retirement. I’ve started to do this on this page here – that’s how I arrived at this goal a few years ago.
Chapter 13 – Picking a Savings Rate suggests what some of you already know, “regularly saving 7 to 10 percent a year” is a good starting point for retirement and Chapters 14 & 15 help you Optimize Your Savings Strategy and create a Gentler Approach to Saving.
Chapter 16 discusses the merits and dangers of Powers of Attorney in Rational Roulette and Chapter 17 revisits the 4 Percent Rule for asset withdrawals stating “withdrawing 5 percent a year is still relatively safe these days assuming your investment portfolio is expected to earn 4.5 percent a year or more.”
In Chapter 18 Vettese explains Why People Hate Annuities (But Should Still Buy One) and the final three chapters offer some random reflections – summarizing his views on retirement this way: “As a priority, saving for retirement falls somewhere between buying Super Bowl tickets and buying shoes for your young children.” Basically, lead a balanced life. Sound advice.
For your chance to win a copy of The Essential Retirement Guide please enter my giveaway below – thanks for reading and good luck!