Pensionize Your Nest Egg: How to Use Product Allocation to Create a Guaranteed Income for Life Book

Preface xi

Introduction: Why Retirement Income Is Better than Retirement Savings 1

Part I Why You Need to Build Your Own Pension Plan: The Most Predictable Crisis in History 5

Chapter 1 The Real Pension Crisis 7

Up a Creek without a Pension Paddle 8

Mixing Defined Benefit Apples and Defined Contribution Oranges 9

It Takes Two to Tango: A Basic Lesson about the Nature of True Pensions 14

Guarantee versus Ruin 15

When Is a Pension Not a Pension? 16

There Ain't No Such Thing ... as a Free Pension 17

The First True Pensions 19

Chapter 2 Planning for Longevity: Risks While Waiting for Your Return 21

The Grim Reaper's Coin Toss 25

Introducing Longevity Risk 25

Predicting Future Longevity 27

How Should You Insure Against Longevity Risk? 29

Will You Get Heads ... or Tails? 30

Chapter 3 How the Sequence of Returns Can Ruin Your Retirement 33

How Long will the Money Last? 36

Clockwise Investment Returns 40

Counter-Clockwise Returns 42

Triangles, Bulls, and Bears: The Retirement Income Circus 44

Can Buckets Bail Out a Poor Sequence of Returns? 45

Would Saving More Save Your Retirement? 46

Chapter 4 Inflation: The Great Money Illusion 49

What Does This Mean for Retirees? 52

The CPI-Me and the CPI-You 54

Does the CPI Measure Your Spending? 55

A Reality Check for Your Retirement Spending? 56

What Did We Learn So Far? 57

Part II Developing A Sustainable Retirement Solution: The Modern Approach that is Hundreds of Years Old 59

Chapter 5 Beyond Asset Allocation: Introducing the New Science of Product Allocation 61

Product Allocation: New Baskets for Your. Nest Egg 61

Three Product Silos 62

The Spectrum of Retirement Income Silos 64

How Do the Silos Stack Up? 65

Chapter 6 An Introduction to Life Annuities 67

Pension Contributions as Insurance Premiums 68

Buying a Personal Pension 69

Converting Your Nest Egg to Retirement Income 71

When Should You Buy an Annuity? 72

Annuities versus GICs 75

Is the Annuity Gamble Worth It? 76

Great-Grandma's Gamble 77

The Power of Mortality Credits 79

What about 50-Year-Olds? Should They Buy Personal Pensions? 80

What about Interest Rates? 82

How Can I Use Annuities to Protect against Inflation? 83

Unique and Peculiar Insurance 84

Chapter 7 A Review of Traditional Investment Accounts 87

Asset Allocation in Your SWP 89

What Should You Put in the SWP? 90

Chapter 8 Introducing the Third Silo-Guaranteed Lifetime Withdrawal Benefit Products 93

Guarantees and Growth: How GLWBs Work 94

GLWBs: Issuers, features, and Benefits 97

Chapter 9 Your Retirement Sustainability: Fundamental Concepts in Retirement Income Planning 101

Which Glasses Will You Wear? 103

How Many Eggs Can You Withdraw from Your Nest? 104

What Should You Protect Against: Floods or Meteorites? 107

Do You Feel Lucky? Pensions, Survival Probabilities, and Spending in Retirement 108

Pensions Change the Game 108

How Does Pensionization Impact Your Retirement Sustainability Quotient? 110

Pension Annuities: Step-by-Step Math 116

The True Gift of Pensionization 117

Chapter 10 The Most Difficult Question You Will Ever Have to Answer (About Your Retirement) 119

Retirement Sustainability or Financial Legacy? 121

Pricing Your Inheritance 122

Finding Your Spot on the Frontier 124

Chapter 11 Divvying Up Your Nest Egg 127

What Is the Cost to Pensionize? 130

When Should You Pensionize? 132

Summary of Part II 133

Part III The Seven Steps to Pensionize Your Nest Egg 135

Chapter 12 Step 1: Identify Your Desired Retirement Income 137

Step 1-Identify Your Desired Retirement Income 137

Estimating Your Desired Income from the Top Down 141

Estimating Your Desired Income from the Ground Up 141

Recap of Step 1 143

Chapter 13 Step 2: Estimate Your Existing Pensionized Income 145

Canada's Public Pensions 146

Old Age Security 147

The Guaranteed Income Supplement 147

The Quebec and Canada Pension Plans 148

How Much Will You Receive? 149

Benefits from a Defined Benefit Pension Plan 150

What If I'm Worried about the Future of My Db Pension Plan? 152

Timing the Retirement Decision 152

Completing Step 2 153

Recap of Step 2 153

Chapter 14 Step 3: Determine Your Pension Income Gap 155

Your Average Tax Rate 156

Your Pension Income Gap 157

Adjusting for Inflation 159

Recap of Step 3 160

Chapter 15 Step 4: Calculate Your Retirement Sustainability Quotient 163

What Kind of Eggs Do You Have in Your Nest? 163

Filling the Gap 164

Recap of Step 4 168

Chapter 16 Step 5: Assess Your Plan: Is It Sustainable? 169

Recap of Step 5 171

Chapter 17 Step 6: Calculate Your Financial Legacy Value 173

Recap of Step 6 174

Chapter 18 Step 7: Use Product Allocation to Pensionize the Right Fraction of Your Nest Egg 175

Case Study: Jack and Jill Go Up the Hill (to Fetch a Retirement Income Plan) 176

Step 1 Identify Your Desired Retirement Income 177

Step 2 Estimate Your Existing Pensionized income 178

Step 3 Determine Your Pension Income Gap 178

Step 4 Calculate Your Retirement Sustainability Quotient 179

Step 5 Assess Your Plan: Is It Sustainable? 180

Plan A Spend Less 181

Plan B Pensionize a Fraction of Your Nest Egg by Buying an Annuity 181

Step 6 Calculate Your Financial Legacy Value 182

Step 7 Use Product Allocation to Pensionize Your Nest Egg 183

Summary of Part III 184

Final Thoughts 185

Notes 189

Bibliography 193

Acknowledgements 195

About the Authors 197

Index 199