List of Exhibits xi
Preface xv
Preface to the Second Edition xv
Preface to the First Edition xvii
How to Use This Book xviii
Introduction: Why Retirement Income Is Better than Retirement Savings 1
PART ONE: WHY YOU NEED TO BUILD YOUR OWN PENSION PLAN: THE MOST PREDICTABLE CRISIS IN HISTORY 7
Chapter 1: The Real Pension Crisis 9
Up a Creek without a Pension Paddle 11
Mixing Defined Benefit Apples and Defined Contribution Oranges 12
It Takes Two to Tango: A Basic Lesson about the Nature of True Pensions 22
Guarantee versus Ruin 23
When Is a Pension Not a Pension? 24
There Ain t No Such Thing as a Free Pension 25
The First True Pensions 27
Chapter 2: Planning for Longevity: Risks While Waiting for Your Return 31
The Grim Reaper s Coin Toss 35
Introducing Longevity Risk 36
Predicting Future Longevity 39
How Should You Insure against Longevity Risk? 41
Will You Get Heads or Tails? 41
Chapter 3: How the Sequence of Returns Can Ruin Your Retirement 43
How Long Will the Money Last? 44
Clockwise Investment Returns 47
Counterclockwise Returns 49
Triangles, Bulls, and Bears: The Retirement Income Circus 51
Can Buckets Bail Out a Poor Sequence of Returns? 52
Chapter 4: Inflation: The Great Money Illusion 55
What Does This Mean for Retirees? 58
The CPI-ME and the CPI-YOU 60
Does the CPI Measure Your Spending? 62
A Reality Check for Your Retirement Spending 63
What Have We Learned So Far? 64
PART TWO: DEVELOPING A SUSTAINABLE RETIREMENT SOLUTION: THE MODERN APPROACH THAT IS HUNDREDS OF YEARS OLD 65
Chapter 5: Beyond Asset Allocation: Introducing Product Allocation 67
Product Allocation: New Baskets for Your Nest Egg 67
Three Product Silos 68
The Spectrum of Retirement Income Silos 70
How Do the Silos Stack Up? 72
Chapter 6: An Introduction to Life Annuities 73
Pension Contributions as Insurance Premiums 74
Buying a Personal Pension 75
When Should You Buy an Annuity? 77
Annuities versus Term Deposits 79
Is the Annuity Gamble Worth It? 81
Great-Grandma s Gamble 81
The Power of Mortality Credits 83
What about 50-Year-Olds Should They Buy Personal Pensions? 84
What about Interest Rates? 87
How Can I Use Annuities to Protect against Inflation? 89
Unique and Personal Insurance 90
Chapter 7: A Review of Traditional Investment Accounts 93
Asset Allocation in Your SWP 95
What Should You Put in the SWP? 96
Chapter 8: Introducing the Third Silo Annuities with Guaranteed Living Benefits 99
Guarantees and Growth: How Variable Annuities with Guaranteed Living Income Benefits Work 101
Evaluating an Annuity with Guaranteed Living Benefits: How Should You Choose? 104
Chapter 9: Your Retirement Sustainability: Fundamental Concepts in Retirement Income Planning 107
Which Glasses Will You Wear? 109
How Many Eggs Can You Withdraw from Your Nest? 110
What Should You Protect Against: Floods or Meteorites? 113
Do You Feel Lucky? Pensions, Survival Probabilities, and Spending in Retirement 114
Pensions Change the Game 114
How Does Pensionization Impact Your Retirement Sustainability Quotient? 116
Pension Annuities: Step-by-Step Math 122
The True Gift of Pensionization 124
Chapter 10: The Most Diffi cult Question You Will Ever Have to Answer (About Your Retirement) 125
Retirement Sustainability or Financial Legacy? 127
Pricing Your Inheritance 128
Finding Your Spot on the Frontier 130
Chapter 11: Divvying Up Your Nest Egg 133
Creating a Retirement Plan for Robert Retiree: Cases 1 through 10 133
What Is the Cost to Pensionize? 137
When Should You Pensionize? 140
When Should You Turn Your Living Benefit On? 141
Chapter 12: A Deeper Look at the Promise of Pensionization: Revisiting the Two Gertrudes 147
Activating the Time Machine: Gertrude at Age 65 148
Lifetime Income: Now or Later? The Implied Longevity Yield 150
Lifetime Income: Now or Later? The Role of Changing Interest Rates 152
A Tool to Help with Your Decision: The What If I Wait? Analyzer 155
Moving Beyond Yield: Understanding the Cost-Benefit Trade-off of Pensionizing Your Nest Egg 157
Pensionizing: Financial and Nonfinancial Benefits 160
Summary of Part Two 161
PART THREE: THE SEVEN STEPS TO PENSIONIZE YOUR NEST EGG 163
Chapter 13: Step 1: Identify Your Desired Retirement Income 165
Estimating Your Desired Income from the Top Down 169
Estimating Your Desired Income from the Ground Up 169
Chapter 14: Step 2: Estimate Your Existing Pensionized Income 173
Public Pensions in the United States, United Kingdom, Canada, Australia, and New Zealand 174
How Much Will You Receive? 174
Benefits from a Defined Benefit Pension Plan 175
What If I m Worried about the Future of My DB Pension Plan? 177
Timing the Retirement Decision 177
Completing Step 2 177
Chapter 15: Step 3: Determine Your Pension Income Gap 179
Your Average Tax Rate 180
Your Pension Income Gap 181
Adjusting for Inflation 183
Chapter 16: Step 4: Calculate Your Retirement Sustainability Quotient 187
What Kind of Eggs Do You Have in Your Nest? 187
Filling the Gap 188
Chapter 17: Step 5: Assess Your Plan: Is It Sustainable? 193
Chapter 18: Step 6: Calculate Your Expected Financial Legacy 197
Chapter 19: Step 7: Use Product Allocation to Pensionize the Right Fraction of Your Nest Egg 199
Case Study: Jack and Jill Go Up the Hill (to Fetch a Retirement Income Plan) 200
Step 1: Identify Your Desired Retirement Income 201
Step 2: Estimate Your Existing Pensionized Income 202
Step 3: Determine Your Pension Income Gap 202
Step 4: Calculate Your Retirement Sustainability Quotient 203
Step 5: Assess Your Plan: Is It Sustainable? 204
Step 6: Calculate Your Expected Financial Legacy 206
Step 7: Use Product Allocation to Pensionize Your Nest Egg 207
Summary of Part Three 208
Final Thoughts 209
Notes 213
Bibliography 219
Acknowledgments 221
About the Authors 223
