Thursday, February 09, 2006

Retirement Books

They say time is money, but lately I think it's also true that money is time, or rather thinking about money takes time! There are so many interesting books and news stories and life events that relate to money and I am getting backlogged on all the things I want to write about! A few weeks (months?) ago, I promised a recap of some retirement books I wanted to check out. Well, finally, here it is!

The New Retirement: The Ultimate Guide to the Rest of Your Life

I wanted to review this book because it was actually last year's best-selling book with the word "retirement" in the title, according to Nielsen Bookscan, which tracks retail book sales. The title of the book is fairly accurate-- this oversized paperback really does do a pretty good job covering almost all the aspects of retirement, at least all the ones I could think of, anyway! However, its comprehensiveness may not make it the best choice if you just want to hone in on financial planning for retirement-- it's not until page 362 that you get to Chapter 9, "How Do You Make Your Money Last as Long as You Do." Chapter 10 covers "Tax Issues Affecting Retirement." The rest of the book is really about retirement lifestyles, with information about the costs of these lifestyles being included but fairly parenthetical.
That said, I think it is a pretty good book if you just want to start thinking about how you'd like to spend your retirement, exploring questions about whether and when you should retire, things you might like to do to fill your time, such as education, hobbies, volunteering, part-time work, and most extensively, travel. There are lots of phone numbers and web resources on all of these areas, and sidebars on topics such as how to be a "gentleman host" on cruise lines so you can travel on the cheap (and presumably, get a lot of action with the ladies!)
A whole section of the book is devoted to the best places for retirees to live, both in and outside the US. Each area gets a report card on categories such as climate, health care, and cost of living. A chart in the Tax Issues chapter also details tax rates by state, current as of 2003. A lot of this information may be available from other sources, but I thought this book presented it in a friendly, clear, accessible tone, with real-life case studies and anecdotes, and plenty of sources for further reading.
To focus on the finance chapters: again, this material may be available elsewhere in more detail, but I found the book's presentation to be a pretty good overview, without going into great depth in any particular area. Chapter 9 starts out with "How Much Money Do You Need to Retire?" They talk a bit about various often-cited estimates and give advice such as "Reexamine your 401k plan" and "Separate the necessities from discretionary expenses" and "anticipate health insurance costs" but don't give you much information about exactly how to do these things. They explain the various sources of retirement income, suggest using retirement planning calculators and worksheets, and discuss some frequently asked questions about retirement, such as "should you have a mortgage," "should you purchase long-term care insurance," and "should I use a traditional IRA or a Roth IRA."
The tax chapter looks mainly at the impact of living in one state vs. another, in terms of income and property taxes, as well as topics such as how Social Security payments are taxed, and a very brief discussion of estate planning. The estate tax planning part was a bit of a disappointment. They basically say the rules are changing, it's really complicated, you should definitely have a will and get assistance from a qualified professional. I was hoping for something a wee bit more detailed than that. The section about year-end tax planning is better, detailing quite a few suggestions on how to maximize deductions, with some neat examples about when it makes sense to donate securities, and how you might want to consider setting up a Roth IRA for your kids.
To sum it all up, this is a great overview if you want a beginner-level look at all aspects of planning for retirement. It makes retirement sound so lively and positive, it made me wish I was older! I would give this book to anyone who is at or starting to approach retirement age... except for my dad, because he is such an old grump, all the fun stuff would be totally lost on him!
If you want to focus more on how to afford to retire and need more in-depth financial advice, other books might be a better fit. One to consider is the other book I read:

Retire on Less Than You Think
This book tackles the financial side to retirement in a fairly concise, fact-packed manner. First, the author, Fred Brock, looks at whether or not you should retire in the first place, He points out that many people don't really think about why they want to retire and what they will do with that time, and then have a hard time adjusting to their new lifestyle, which if you retire at 60 and live to 90, will take up one third of your life!
Brock then delves into the money issues-- how much money you'll need, where you'll get it, and how to reduce expenses to make ends meet. There is lots of very practical information: how to realistically estimate your post-retirement expenses, how to estimate how much your nest egg will be based on different retirement ages, how much spending money you can safely pull out of your nest egg each year, and how to use a reverse mortgage to augment retirement income. There is also quite a bit of detail on costs of living in different states, with specifics on housing costs, tax rates, cost to maintain a car, as well as how health insurance costs can differ geographically (for insurance needed before Medicare kicks in, or for gap coverage.)
One thread that runs throughout the book is Brock's belief that most sources of financial advice overstate the income level necessary in retirement. He sees this as the result of a propaganda campaign on the part of the mutual fund industry-- that basically, they are trying to scare us into investing more of our money by making us believe we won't have enough to retire on otherwise. This can begin to sound a little paranoid, but it's probably true that knee-jerk assessments of retirement income needs may be wrong. As the author says, they should be based on post-retirement expenses, not some percentage of pre-retirement income. But-- and this is a big but-- there seems to be a bias in who the intended audience for this book is.
If Joe Retiree is someone who has a fully paid-off house in an expensive area in the Northeast, and is willing to move to an inexpensive area in the Southwest and cut back on certain aspects of his lifestyle, then great! He can sell his house, buy a cheaper one with all cash and use the rest of his cash to pay for his newly simplified life. But if Joe Retiree already lives in one of the cheaper parts of the country and still has a mortgage to pay off, and is already fairly frugal about his expenses, many of the author's reassuring revelations won't apply. And if Joe Retiree just doesn't feel like moving out of his expensive Northeastern house, he's pretty much S.O.L. unless he has been throwing a lot of money at that nefarious mutual fund industry.
The author also has a whole chapter about how Social Security works and that we can all count on it being there. He spends most of this chapter delving into the recent arguments about what should be done, if anything, to change the Social Security system. Aside from whether or not one agrees with him, readers might find this part of the book out of place. I would have preferred that he skip directly to the practical information about Social Security payments.
That said, I think this is a useful book, with practical information and helpful examples of people who have managed retirement from a variety of financial positions. The book offers a lot of reassurance for anyone who might be afraid they can never retire, as long as they are willing to be flexible about the kind of lifestyle they want in retirement. Where The New Retirement lays out all sorts of options for what to do when you're retired, Retire on Less Than You Think hones in on the the real nitty-gritty of how to afford it.

1 comment:

thc said...

Brock's book concerns me in that, in my many years of financial planning, I have rarely met clients who are surprised by how little they could retire on. It's almost always the other way around.