“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!
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and now investing beyond the 7-figure portfolio to start semi-retirement with. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
Looks like a great read! I am throwing my name in the hat! No Mortgage before retiring is #1 on my radar.
Ata boy Mike. Thanks for all the social media support. Ready for another RRRRRRRRREDBLACKS season? How is the podcast coming along?
Great review. I also read his first book and think we’ll be ok for retirement in 2 years.
As I’m creeping inexorably from my mid-50s into the upper 50s, I have been thinking increasingly about retirement. This book is on my my reading list, but I haven’t got there yet. I’d welcome the opportunity to get a copy of my own.
Good luck Russ!
Looks like an interesting read. Another tool in my retirement knowledge toolbox
Good luck Doug!
It sounds like this book would be a great help in planning the retirement.
As usual enjoy your posts..and giveaways. Agree the annuity recommendation may be appropriate for Boomers when rates improve
Thanks Carmen for the kind words.
Looks like a very interesting book!
Looks like an interesting read. I don’t know much about life expectancy and LTC so those chapters peak my interest. Thanks for the giveaway!
I was just mentioning this book to a work colleague who filled in a retirement calculator quiz that said she needed to have $2 million to retire! She was alarmed by that and because it seems like such an outlandish figure, it risked her concluding it wasn’t worth even trying. I mentioned having read a library copy and wishing I had it to give to her.
Well, you do need a good chunk of change to retire but essentially it comes down to your living expenses in retirement, and of course, lifespan. Somebody that is cheap and unfortunately dies at 75 will need far less money in the bank than someone who lives life large until age 95.
Send her to the blog and get your entire workplace to subscribe to it! Kidding aside, hopefully she’ll read the book and help inform her.
Thanks Bart Bandy.
It’s not that it’s not worth trying for the million, just be well aware almost everyone will fail to achieve the mark (99% of us) — but you should still try! As Mark mentions, it’s much easier to adjust living expenses than to try and accumulate $2MM in investable assets. Life gets even easier if you do both — adjust and accumulate.
Thanks SST. You have a “magic number” in mind SST (for retirement)?
My point was really that when a number is so big that it looks daunting and unattainable, many people think it is so far beyond them to reach that they don’t try. Vettesse’s messages are more about reassurance.
I’m a big fan of this site and have shared it to a few of my colleagues – keep up the great work!
How true Bart. Thanks for being a fan! 🙂
Form the chapters summary, It looks that the book covers so much ore than I have in mind now.
chapter 7 looks interesting. In my planning tool, I assume the same expenses from FIRE to the last day…
I think the book was overall well done. Fred is a sharp guy and a well-respective actuary.
Retirement has so many unknowns such as interest rates going forward, rate of inflation, your health, etc. “The Essential Retirement Guide” seems like a long overdue read on ways to reduce some of the anxiety which people experience while approaching or even during their retirement years.
Absolutely Pete. Plans are only so good and take you only so far. It’s hard to predict the future. On that note, this is balanced book that forces people to reduce their anxiety, plan for tomorrow (yes) but live for today. Thanks for sharing.
BTW – I emailed you I believe about another giveaway!
As we are both mid 70’s guess it’s the hurdle, 80’s and hopefully 90’s. Everyone’s position is different but I think this is aimed more for those who may not have planned for the future or not saved enough. Even for those I don’t think annuities are a good choice. Especially as rates are so low. The insurance companies have to make money so it’s unlikely the payments will be as good as the returns one can do from their own portfoilo.
I think you’re right about the target audience. I suspect this book is likely aimed at Boomers, specifically those Boomers that haven’t saved enough or are not sure if they have saved enough.
I would question annuities until at least age 70. Even then if you have a healthy dose of income, not sure you need them.
Cannew, from what I know, you’ll never have an income issue in retirement – good on you.
Sounds like a great read and valuable resource to assist planning and maybe challenge some traditional thinking. Maybe even some of mine.
Maybe! 🙂
Challenge is one thing….change is another. LOL
Good point!
re: Chpt 18 — Annuities…a very general comment but I’ve heard annuities should be considered seriously as one gets considerably old (e.g. near or past average age of mortality) mostly because mental sharpness can decline and annuities don’t really require any heavy decision making (e.g. rebalancing, et al).
About the “declining health 70 plus” stage…it’s very individual: e.g. I know a 75 year-old who’s still flying airplanes, and a 70 year-old who painted his entire two-story house, including set up/tear down of scaffolding. Not sure where I read it, but the stat was we spend the vast bulk of our health care money in the last year of our life. In most cases I would say this to be true, because when you are actually old (85) and get sick, it is a very fast decline.
Have you ever watched The Amazing Dr Po guy is in his 70s and can out run his son! Guy is amazing!!!, But people like him are the exception to the rule. A lot has to do with not only health but how active you were before you retired. A 50 year old couch potato is unlikey to take up hiking (or wandering as the British call it) in thier 60s and for sure by there 70s will be mostly house bound.
For example my mother in law is 76 and can barely, barely make it up a flight of stairs. She can only go about 10 feet before ahe has to stop and rest. On the other hand my brother in law and a friend thier Dadsin thier 90s are still very active. And of course health and such make a huge difference.
Absolutely health makes a huge difference – thanks for sharing Rob. Best wishes to your family.
Funny I was just about to post a comment this on your previous post on this very thing. Your retirement can be broken into two parts, the early healthy part, usually 60-70 and declining health 70 plus. I really appreciate the fact he talks about how spending drops as you age. Over saving can be a trap as much as undersave.
I agree Rob. Money for your future is important but the reality is most people don’t live as long as they think they will. Live and enjoy life while you can, and enjoy your health as long as you have it.
No point in over saving, just save enough. Thanks for the comment.
I’m of the opinion that most people should be striving to over save to some extent. I’m not saying go overboard but ending up with more than one actually needs is better than not having enough. And no one knows what “enough” is. Like a budget for a reno, assume you will need more than what is quoted when the job is done.