MacKenzie and Hawkins’s “New Rules of Retirement- What your financial advisor isn’t telling you”
Just finished reading this new book by MacKenzie and Hawkins; it is a quick read that covers a good breadth of retirement finance. The book consists of “38 Rules”. Rule 1 is to “Throw away old retirement myths” such as: retirement is about not working, all leisure, or that retiree has full control on retirement age or having to live on investment income (without touching principal) and not taking any financial risk in retirement. It finishes with Rule 38 the “7 steps to a perfect portfolio” which are: planning, education, risk, fees, efficient frontier, comparison (benchmark) and tax (a great summary). In between Rules 1 and 38, you’ll find broad coverage of retirement topics from lifestyle to financial: -importance of engaging in “activities that provide a sense of meaning and purpose” -“it’s not aging that leads to intellectual decline but rather a lifestyle that lack stimulation” -the blurring lines between working and retirement -housing options including whether to sell your home or not -longevity exposure (42% probability at least one of a 65 year old couple will make it to 90) -the key element of managing expenses during retirement (i.e. it’s not just about retirement income) and the risk of “lifestyle creep”; understanding the difference between musts and wants when looking at expenses -discussion one of common flaws in financial planning, that expenses are constant in real terms -inflation (3-5.5% between 1966-2007) as a primary risk for those on fixed income, and warning that this level of inflation can have a “dramatic effect on the purchasing power of the dollar” during a 30 year retirement; they also point out that seniors’ cost could rise even faster that general price levels due to demand resulting from demographics -discussion of sources of retirement income : (1) government programs OAS, GIS, CP/QPP, (2) the critical need to understanding your company pension plan if you have one (as many of us have recently learned), (3) RRSP/RRIF (TFSA )and (4) personal (taxable account) savings -“working a few more years can make a big difference”, appropriate assumptions for expected returns on assets and the impact of poor returns early in retirement -focusing on the investment process, not products; only taking as much risk as necessary to achieve goals and watching investment product costs (higher risk products also come with higher MERs) -importance of diversification (and what does and does not constitute diversification), making sure you understand the downside risk in a bear market -the criticality of having an investment strategy (including tradeoffs between passive and active approaches in security selection and asset allocation), keeping your portfolio simple , knowing the return that you actually get and comparing that to appropriate benchmarks (e.g. absolute return required for your goals and relative return to the market) -criticality of fees and commissions and their impact on investment results -not just asset allocation, but asset location: dividends and high risk assets in taxable account, while fixed income (interest bearing) and low risk investment in tax-deferred or tax-free accounts -mutual funds vs. stocks and bonds vs. ETFs (the latter is generally the best for a simple low-cost portfolio approach; core-satellite portfolio structure -exploring what role do you want to play in the management of your portfolio, how to maximize the value that financial advisor brings to you? There is a continuum between doing it yourself (certainly a viable approach) to delegating everything to a professional -the book also has a great list of available “online” resources. Well worth reading! I recommend as part of your financial education process.