Swedroe: Make Your Retirement Money Last

Whether you are planning to retire, or are already retired, Jane Bryant Quinn’s “How to Make Your Money Last: The Indispensable Retirement Guide” is one of the best “investments” you can make.

Ms. Quinn is one of the leading journalists in personal finance. She clearly cares very deeply about helping investors find the right answers and avoid being sheared like sheep by the wolves that populate the investment landscape. Her writing is crystal clear, making technically difficult concepts understandable for the layperson.

Her book begins with an important question: “Now that you can do whatever you want, what do you want to do?” She notes that while learning how to stretch your available assets and “rightsize” your life are the first steps toward retiring well, it’s important to ensure that when you retire from your job, you don’t retire from life. She writes that retirees must find new challenges that will fulfill them emotionally and intellectually, while at the same time keeping them well-connected to society.

A Guide To Retirement

The first chapter of her new book discusses five states of retirement: preretirement, the honeymoon, disenchantment, reorientation and stability.

Her second chapter is about rightsizing your life (finding that happy place where the annual income you expect matches or exceeds your annual spending), and she observes that “you’re never afraid to open your bank statement when you’re living within your means.”

Chapter three focuses on making the right decision about when to take social security, emphasizing an important point that far too many people fail to consider—the role of social security as longevity insurance. This chapter in particular is extremely well done.

Chapter four is all about helping you make the right choices when it comes to health insurance.

And chapter five addresses pension plans and making smart decisions about whether to take them as annuities or as a lump sum.

Building on the previous topic, chapter six is about “buying your own pension,” and undertakes an in-depth examination of the role of annuities, both immediate and deferred. Ms. Quinn raises all the right questions and gives readers the information they need to make the right decisions.

As always, she tells it straight. She recommends that investors avoid the slew of bad products created by the insurance industry, including expensive and complex variable annuities (they are products meant to be sold, never bought). She also shows you how to deal with the issue of variable annuities if you already own one.

The Greatest Bang For Your Buck

Chapter seven is about getting the most out of retirement plans, such 401(k)s, 403(b)s, 457s, traditional IRAs and Roth IRAs. In addition to providing advice on how to best use these vehicles, she also provides guidance on the investment choices within them, recommending you stick with low-cost, passively managed funds like index mutual funds and index ETFs. She also covers the issue of rolling over corporate plans when you retire.

Further, this chapter discusses the important issue of withdrawal strategies (the order from which accounts you withdraw funds). Other topics Ms. Quinn covers include making sure account beneficiaries are correct and how to “stretch” IRAs as long as possible.

Chapter eight explains how to set the right spending (withdrawal) rate, and addresses the question of whether 4% is still generally the right amount (and if it’s the right one for you). This chapter is one of the best, and provides various strategies retirees can use to choose the right spending figure, which is one that will minimize the chances of outliving your assets while still allowing you to enjoy the fruits of your labor.

Chapter nine is about “investing for income.” Here again, Ms. Quinn’s advice is dead-on. She notes: “Nothing endangers your lifestyle more than to pile into ‘income investments.’” Her recommendation on bonds is to stick with traditional high-quality, transparent, safe fixed-income investments like Treasurys, CDs and, for mutual funds, to use low-cost, indexed investment-grade bond funds.

For equities, her recommendation again is to limit choices to low-cost passively managed vehicles, like index funds. She also discusses the role of target-date funds, with the key being that the asset allocation of the fund should match your own risk profile—your ability, willingness and need to take risk.

There is also a good discussion of the “bucket” approach, which some investors find provides a psychological benefit that helps them stay disciplined (avoid panicked selling) in bear markets. And finally, there’s an excellent discussion on the products you should avoid, such as nontraded REITs, private placements, business development companies, life settlements, funds of hedge funds and absolute-return funds.

Housing And Insurance

Chapter 10 is about using your house as a “piggy bank.” There’s an excellent discussion about the choices you have regarding downsizing, renting versus owning, moving to a lower cost-of-living area and moving to a continuing care or retirement community.

Additionally, there’s an excellent analysis about the potential role for reverse mortgages. While these are complex products, Ms. Quinn does her usual excellent job of explaining all the pros and cons.

Chapter 11 is about life insurance and the role it can play in retirement. It addresses issues regarding what to do with existing policies and how to best use cash values in policies. There are many complex issues, and Ms. Quinn provides the answers, as well as explaining where to go to get good, unbiased advice in a world filled with biased salespeople.

The final chapter provides a helpful checklist of 18 things to do both preretirement and throughout retirement.

In my view, there really is no more trustworthy financial journalist than Jane Bryant Quinn, and her new book is a tour de force of the financial issues you’ll face in retirement. I highly recommend it.

Larry Swedroe is the director of research for The BAM Alliance, a community of more than 140 independent registered investment advisors throughout the country.