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I have read several other retirement investment books since this one and found that this one was the best of the lot. I highly recommend it to anyone who planning retirement savings plans or anyone wondering about retirement right now.
The book is intended for someone that is in the later stages of their working life who expects to retire in the not too distant future. Although the title of the book implies that it was written for someone in their 50s, the book is really intended for anyone that is in the latter half of their working career. I am in my forties and felt that this book had a lot to offer. Schwab offers advice on how to invest in preparation for your retirement, and what to do with your investments after you retire. Although the book does not assume that everyone has built up a nice nest egg by the time that they're fifty, it acknowledges that those that haven't are going to have a some of catching-up to do.
Schwab does have an aggressive bias when it comes to investing. He recommends a portfolio that is heavily weighted in stocks even after you retire. This is contrary to the traditional weighting recommended by most other sources. His rationale for this approach is that retirement is much longer now than in the past. People are living longer. The returns that you get with a traditional conservative portfolio may not last your lifetime. He also feels that the income that you'll need after you retire is often understated by many financial planners. Although we live longer, the older we get the more unexpected expenses we may incur (medical, long-term care, etc). Although he acknowledges the risks with this approach, he points out that there are risks with the conservative approach also - that your savings will run out when you need it most.
In addition to investing, Schwab covers other topics such as types of insurance that will make your retirement years less risky for you and your family (life, health, disability, long-term care, etc).
Schwab includes a chapter on charitable giving and stresses how important it is for all of us to give back to their community. Like other texts, he summarizes some of the tax advantages of giving, but he truly seems to believe that those fortunate enough to have accumulated some wealth need to consider returning some of it to a cause that they believe in. I thought that this chapter was nice touch and a departure from the "show me the money" attitude that is the cornerstone of most personal finance books.
This book is not perfect and may not be for everyone, but if you are in the latter half of your working career, I think that you will enjoy and benefit from this book.
The book may be of value to those privileged individuals who have been fortunate to have had a lucrative career or a savings account at the local bank, but the book is certainly not written for everyone. As one woman said to me, "financial advisors, insurance, estate planning...the only thing I can plan is my grocery list - which brand of mararoni and cheese is going to be on sale next week." In this case the book serves only as a constant reminder of what the individual does not, and may never have. While the book does have merit, it is not one I could recommend to everyone.
One area he doesn't touch, however, is somewhat disappointing, because his perspective is badly needed.
What if we could also invest our Social Security taxes in our own IRAs or 401(k) accounts? Imagine how much more financially secure we'd really be when we hit 65 (or 67 or 70) if we could conservatively invest even a portion of the 12.4% we currently send to Washington with the increasingly dubious prospect that we'll get anything more than a 1% or 2% rate of return?
Obviously, there's been a lot of political talk -- particularly among Bush and the GOP -- about partially privatizing Social Security. But until recently, I couldn't really find a good book from the perspective of Wall Street CEO or financial services expert explaining the pros and cons and potential benefits.
Until now...I just read a book called "NEW CENTURY, NEW DEAL: How To Turn Your Wages Into Wealth Through Social Security Choice" by American Skandia CEO Wade Dokken...which I highly recommend as a companion to Charles Schwab's excellent book.
Why? Because it takes the arguments Schwab makes one step further. It explains -- not in political talk but from the perspective of a CEO whose expertise is in long-term savings products and retirement planning -- exactly how personal retirement accounts could and should work...and what the benefits would be.
One fascinating point: if a worker making $32,000 a year could invest 8 points of his or her 12.4% Social Security taxes into a personal retirement account like an IRA and receive just a 6% annual rate of return (after inflation), that worker could over the course of 35 to 40 years build up a nest egg worth $1.2 million! That's far beyond what the government can promise, even if the system doesn't go belly up when all of us Boomers retire.
So kudos to Schwab for showing us how to chart a course for the present. Kudos to Dokken for showing us how to chart an even more exciting course to the future.
I applaud the author's advice to consider a 4% annual withdrawal rate from investments. In my experience, many financial advisors, influenced by the prolonged bull market, have suggested higher rates.
I caution against following every opinion in this book, however. Three broad suggestions by the author stood out as troublesome, in my view:
First, that "you're better off including individual stocks and stock utual funds in your retirement account (where taxes are deferred) and bonds in your regular account (which is currently taxable." (Page 184.) Adopting a contrary strategy, and minimizing taxes on the equity portion of your portfolio (held in a regular account), can in my view yield far superior results, from both a financial planning and estate planning perspective.
Second, the statement "If you have a Roth IRA, I sugest you withdraw from it first [to generate retirement income] since your withdrawals are not taxed." This statement completely ignores the tremendous long-term benefit of tax-free growth, and I completely disagree.
Third, the suggested asset allocation models are too simplistic -each individual's own asset allocation should be affected by many factors, only some of which are discussed in the book.
While a brief discussion is made of Modern Portfolio Theory and probability analysis (Monte Carlo), more insight into these areas could have been provided, given their utility.
The foregoing comments illustrate the limitations of any book seeking to address the very complicated tax, actuarial, financial planning, asset protection planning, and estate planning issues confronting the retiree today. Despite this, I recommend the book (with reservations) to both retirees, and those approaching retirement, who need to increase their knowledge of basic planning concepts. There is tremendous value in each person educating themselves on financial planning concepts. Just don't take this (or any) one book as gospel.
And now for something completely different.
Q: What do you call a half-dozen Indians with Asian flu?
A: Six sick Sikhs (sic).
