Author: Mike Holman

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!

Intelligent Speculator is a blog about investing, news and comments about the markets and the relevant news. It also supplies users with free stock picks that will hopefully help you get ahead. You can visit the blog at IntelligentSpeculator.net and subscribe to the RSS feed here.

It was mid-November, the market had reached new lows with the S&P 500 closing under 800 points and the economic news was not looking good. Then, something very odd happened as the markets started to rebound. Sure, there had been some positive news such as the end of uncertainty of a new US government and more information about the massive stimulus plan of the US government.  But economic numbers related to demand, consumer confidence and especially employment looked depressed.

However, the markets seemed to shrug off (ignore?) those negative factors very easily as they shot up 25% in a few weeks.  The market rebound hardly seemed justified .  Then the stock markets started dropping because of more bad economic news, the now famous Madoff fraud and more dire economic   news. So markets went back on their road towards new bottoms, with even the new year not being able to stop much of that momentum.

And just last week, with the S&P500 now on a losing streak and standing at 850, some very bleak predictions were released from French Bank SocGen. They have been gathering information from one country that has not received that much coverage given its importance; China. Say what you want about the communist state, it has been gaining importance in the global picture over the past few decades. In fact, as it has rapidly gained its spot in the biggest world economies, China generated much of the world growth over the past decade with growth over 10% year after year.

China is now encountering some severe structural problems that are slowing its economy in a way that will impact the world economy, especially with China’s importance in world trade. In fact, the OECD (Organisation for Economic Co-Operation and Development) has released some economic indicators that look very depressing and could signal an important slowdown. The Chinese authorities could devalue their currency. “It is becoming clear that the Chinese economy is imploding and this raises the possibility of regime change. To prevent this, the authorities would likely devalue the yuan” wrote Albert Edwards of Societe Generale

What would be the consequence of such a change? In fact, Societe Generale spoke of the increasing risk of a global recession and in their opinion, this could mean another 40% drop in the major stock market levels.  Perhaps it seems like a very negative perspective but I am fearful of buying until the market lows of November are tested or until economic data starts to improve, there is just not much positive and no reason really for the stock market to improve at this moment. There is always a risk of missing a positive move but for now, I’m ready to remain on the sidelines or do as I have in recent weeks, do some long-short trading which should not be as affected by a market downward move….

What do you think – is China going to drag the stock markets down further or has it’s problems already been factored in?

Photo credit – taiyofj’s photostream.