The Essential Retirement Guide: A Contrarians Perspective

PRAISE FOR THE ESSENTIAL RETIREMENT GUIDE

"Anyone interested in retirement planning amateur and professional alike will benefit from this book. The advice is original, thoughtful, and objective. The ideas are well organized and clearly expressed. In a field long dominated by numbers and myths, this is as close as we get to wisdom."
Malcolm Hamilton, Retired Actuary and Senior Fellow, C.D. Howe Institute

"Fred Vettese′s new book starts out by showing how traditional retirement finance ′rules′ such as the 70% income replacement target and the 4% post–work drawdown rate are riddled with conceptual holes. One by one, he replaces them with his own planning, saving, and investing rules that combine his professional experience as a top actuary, common sense, and empathy for the reader. A truly valuable retirement guide."
Keith Ambachtsheer, Director Emeritus, International Centre for Pension Management, Rotman School of Management, University of Toronto

"Retirement demystified. Smart, clear, persuasive, and reassuring."
Rob Carrick, personal finance columnist, The Globe and Mail

"Vettese does an excellent job of dispelling some of the financial myths about retirement, giving us all hope that despite our habit of overspending, we won′t outlive our money."
Bart Astor, author of the bestseller AARP Roadmap for the Rest of Your Life

"Fred Vettese is a leading pension and retirement expert. His latest book, The Essential Retirement Guide, is an important addition to the retirement reading list. Fred provides an appealing mixture of hard numbers and philosophical reflection to rebut many elements of conventional retirement advice. Of particular note, he presents well–supported and convincing arguments that most people need far less income in retirement than the financial industry would usually have you believe. He also delves deeply into how to financially cover your potential long–term care needs and provides a critical and persuasive assessment of the value of long–term care insurance."
David Aston, retirement feature writer, MoneySense Magazine

"Fred Vettese′s book is an excellent guide for both long–term planners and latecomers to retirement planning. He takes his readers beyond individual anecdotes and broad averages and gives them the tools to think sensibly about their own prospects and situations. Informative, insightful, and often witty, this book will be useful to people just starting to plan, and to those who are further along and want a fresh view of where they are trying to go and how they can get there."
Bill Robson, President and CEO, C.D. Howe Institute

"Thorough, approachable, and authoritative, Vettese has rewritten the book on retirement finances."
Angela Hickman, Personal Finance Editor, Financial Post

Preface

Acknowledgments

Chapter 1 The Road to Retirement

Detours

Chapter 2 Doubts about the 70 percent retirement income target

Niggling doubts

Saving for retirement is a 2–dimensional problem

The macro case against 70 percent

Low–income workers

Conclusions

Notes

Chapter 3 Honing in on the Real Target

Setting the ground rules

Howard and Barb

Steve and Ashley 1.0

Steve and Ashley 2.0

Expressing consumption in dollars

Conclusions

Chapter 4 A New Rule of Thumb

Guiding principles

Retirement income targets under different scenarios

General rule of thumb

Conclusions

Notes

Chapter 5 Quantifying Your Wealth Target

A rough and ready estimate

A more actuarial approach

Notes

Chapter 6 Why Interest Rates Will Stay Low (And Why You Should Care)

The rise of the savers

The Japan experience

Applicability to the US and Canada

Possible remedies

Implications

Notes

Chapter 7 How Spending Decreases with Age

Doubts

Quantifying the decline in consumption

Why does consumption decline?

Next steps

Notes

Chapter 8 Death Takes a Holiday

Present day life expectancy

Dispersion of deaths

Who is benefiting the most?

Why is mortality improving?

The future

Conclusions

Notes

Chapter 9 Estimating Your Own Life Expectancy

Conclusions

Notes

Chapter 10 Is long–term care in your future?

Long–term care (LTC)

What does LTC entail?

What are the chances you will need LTC?

How long is LTC usually required?

Conclusions

Notes

Chapter 11 Paying for Long–term Care

Typical LTC insurance contract

Does the math work?

The verdict

The consequences of not insuring LTC

Notes

Chapter 12 Putting It All Together

New wealth targets

Buffers

Conclusion

Notes

Chapter 13 Picking a Savings Rate

Historical performance

Lessons learned

What the future holds

Generalizing the results

Notes

Chapter 14 Optimizing Your Savings Strategy

The goal

Strategy 1: Simple

Strategy 2: Simple Lifecycle approach

Strategy 3: Modified Lifecycle

Strategy 4: Variable contribution

Strategy 5: The SMART approach

Conclusions

The Third Lever

Methodology

Chapter 15 A Gentler Approach to Saving

Path 1 – Pain now, gain later on

Path 2 – Smooth and steady improvement

A comparison in dollar terms

Conclusions

Chapter 16 Rational Roulette

Call to action

Watch out for your children

Notes

Chapter 17 Revisiting the 4 Percent Rule

The 4 percent rule

Problems with the 4 percent rule

A more rational spending rule

A Monte Carlo simulation

Conclusions

Chapter 18 Why people hate annuities (but should still buy one)

Why annuities should be popular

The psychology behind the unpopularity

Tontines

The insured annuity strategy

Indexed annuities? Forget it

Conclusions

Notes

Chapter 19 How Workplace Pension Plans fit in

Why employers offer workplace plans

Getting the most out of your workplace plan

How a workplace pension plan affects your dollar target

Online forecast tools

Chapter 20 Bubble Trouble

Why worry about financial bubbles?

Examples of recent financial bubbles

Common Characteristics

The everything bubble

Notes

Chapter 21 Carpe Diem

The numbers

Healthy life years

Trends

Personal genome testing

Notes

Chapter 22 A Life Well Lived

Retirement and happiness

Final thoughts

Notes

Appendix A Similarities between the US and Canada

Social Security programs

High–level comparison of retirement vehicles

A tax comparison

Appendix B Social Security in the US and Canada

Name of Social Security pension plan

Purpose of Social Security

Earnings base for pension calculation

How pension is calculated

How the plans are funded

Normal retirement age

Early retirement age

Delayed retirement

Indexation

Other government–sponsored pension plans

Taxability

Appendix C Retirement income targets under other scenarios

Appendix D About the assumptions used in the book

Thoughts on Conservatism

Assumptions used to estimate personal consumption

Assumptions used to calculate future retirement savings

Assumptions used to estimate the historical accumulation of savings

Couple contemplating long–term care insurance

Assets needed to cover long–term care (LTC)

About the Author

Index

FREDERICK VETTESE is the Chief Actuary of Morneau Shepell, one of the largest human resources consulting and technology companies and one of the top five defined benefit pension plan providers in North America. Fred has spent his entire career providing retirement consulting and actuarial services in respect of workplace pension plans. Much of his professional time these days is spent in the public eye, speaking at professional conferences and writing on retirement issues for the national newspapers and other media. In his spare time, Fred struggles enthusiastically with both his golf game and his piano. He was born and raised in Toronto, Canada, where he continues to reside with his wife Michelle.

The Essential Retirement Guide is Fred′s second book. In 2012, Bill Morneau and Fred co–authored The Real Retirement, a book that explained why Canada was not suffering a retirement crisis. Fred can be reached at fvettese@morneaushepell.com.