New Rules of Retirement – Book Review

I recently received a copy of “New Rules of Retirement” written by investment advisors Warren MacKenzie and Ken Hawkins.  Now if you’re wondering why I would even bother looking at a book written by a couple of investment advisors, I should clarify that these guys are not the normal “mutual fund/used car salesman” type of advisors.  MacKenzie runs the investment company called “Second Opinion Investor Services” which offers unbiased investment advice.  As it says on their web page, they don’t sell any financial products – only advice so they really are unbiased.  Ok, nobody is truly unbiased but these guys are close enough.  They are big believers in passive or index investing, ETFs and index funds – so they are ok in my books!

On with the book review…

What it is about

The book is a fairly complete retirement planning book.  A good portion of the book deals with investing but there is also a lot of discussion about lifestyle factors such as health, housing needs and how you are going to spend your time in retirement.  The investing section lays out some planning strategies and also suggests that lower costs and passive investing is the way to go.

Any good?

Yes, it is very good.  I would say that most people (even readers of this blog) would gain from reading this book, it is a wealth of facts and figures and they talk about many, many different aspects of retirement that most books don’t cover.  If you have already read 4 million financial books and don’t feel you would gain from this one then consider giving it to a friend who perhaps needs a little nudge in their retirement planning.

A couple of chapters I found very interesting were:

Health

This book covers various retirement topics like the odds of being independent at different ages, various age-related spending factors and happiness.  They say that most seniors are not dependent on external care and that the fear of huge medical bills in retirement is a bit exaggerated – especially for the earlier stages of retirement.

They included some interesting stats from a study done by Statistics Canada which show that not all seniors end up dependent.  One stat is percentage of seniors who are “independent in activites of daily living” – in other words they are completely independent.

age 65-74  88%
age 75-84  70%
age  85+  41%

Keep in mind that just because someone is not complete independent doesn’t mean they are completely dependent – there are a lot of non-independent seniors who will use some home care but not necessarily a lot of it.

Another statistic they looked at was a measure of independence – Activities of daily living (ADL) which includes tasks considered vital to retaining personal independence, such as bathing, dressing, eating, taking medication and moving around the house.  The report found that only 6 percent of males and 7 percent of females between age 65 and 84 were ADL-dependent which means they couldn’t do the basic tasks on their own.  For over 85 years of age – the rate of ADL is much higher at 20% plus.  Regardless, even for the 85 year old plus crowd – close to 80% were still ADL independent which is pretty high. Of course most people are dead by this age, but still… 🙂

Annuities

I haven’t done much research in annuities but I have to say that after reading this book, I may try to incorporate them into my retirement planning.  Annuities are basically contracts where you give a big chunk of cash to an insurance company (say $100k) and they will guarantee a certain payment each year.  This is similar to a defined benefit pension except that you have to save up the money to buy in.

For those of us without a good pension, we have to live on OAS, CPP and our savings.  If the stock market crashes then this can cause a bit of stress if your nest egg loses some of it’s value.  MacKenzie and Hawkins suggest that perhaps older retirees can consider buying annuities to reduce their stress.

If someone needs a minimum of $25k per year to live on and their CPP and OAS only add up to $14k then if they bought an annuity (or several at different times) that pays them $11k per year then they could guarantee they will always have enough to get by.  Of course with the rest of their portfolio they can withdraw a moderate amount (ie 4% rule) to give them a good standard of living.

Annuities are cheaper as you get older (ie the payouts get higher) so they say to wait until you get older – and even then – just buy what you need, when you need it.

Stay tuned for the great Canadian book giveaway – coming soon!