Pensionize Your Nest Egg 2e – How to Use Product Allocation to Create a Guaranteed Income for Life

<p>List of Exhibits xi</p>
<p>Preface xv</p>
<p>Preface to the Second Edition xv</p>
<p>Preface to the First Edition xvii</p>
<p>How to Use This Book xviii</p>
<p>Introduction: Why Retirement Income Is Better than Retirement Savings 1</p>
<p>PART ONE: WHY YOU NEED TO BUILD YOUR OWN PENSION PLAN: THE MOST PREDICTABLE CRISIS IN HISTORY 7</p>
<p>Chapter 1: The Real Pension Crisis 9</p>
<p>Up a Creek without a Pension Paddle 11</p>
<p>Mixing Defined Benefit Apples and Defined Contribution Oranges 12</p>
<p>It Takes Two to Tango: A Basic Lesson about the Nature of True Pensions 22</p>
<p>Guarantee versus Ruin 23</p>
<p>When Is a Pension Not a Pension? 24</p>
<p>There Ain t No Such Thing as a Free Pension 25</p>
<p>The First True Pensions 27</p>
<p>Chapter 2: Planning for Longevity: Risks While Waiting for Your Return 31</p>
<p>The Grim Reaper s Coin Toss 35</p>
<p>Introducing Longevity Risk 36</p>
<p>Predicting Future Longevity 39</p>
<p>How Should You Insure against Longevity Risk? 41</p>
<p>Will You Get Heads or Tails? 41</p>
<p>Chapter 3: How the Sequence of Returns Can Ruin Your Retirement 43</p>
<p>How Long Will the Money Last? 44</p>
<p>Clockwise Investment Returns 47</p>
<p>Counterclockwise Returns 49</p>
<p>Triangles, Bulls, and Bears: The Retirement Income Circus 51</p>
<p>Can Buckets Bail Out a Poor Sequence of Returns? 52</p>
<p>Chapter 4: Inflation: The Great Money Illusion 55</p>
<p>What Does This Mean for Retirees? 58</p>
<p>The CPI–ME and the CPI–YOU 60</p>
<p>Does the CPI Measure Your Spending? 62</p>
<p>A Reality Check for Your Retirement Spending 63</p>
<p>What Have We Learned So Far? 64</p>
<p>PART TWO: DEVELOPING A SUSTAINABLE RETIREMENT SOLUTION: THE MODERN APPROACH THAT IS HUNDREDS OF YEARS OLD 65</p>
<p>Chapter 5: Beyond Asset Allocation: Introducing Product Allocation 67</p>
<p>Product Allocation: New Baskets for Your Nest Egg 67</p>
<p>Three Product Silos 68</p>
<p>The Spectrum of Retirement Income Silos 70</p>
<p>How Do the Silos Stack Up? 72</p>
<p>Chapter 6: An Introduction to Life Annuities 73</p>
<p>Pension Contributions as Insurance Premiums 74</p>
<p>Buying a Personal Pension 75</p>
<p>When Should You Buy an Annuity? 77</p>
<p>Annuities versus Term Deposits 79</p>
<p>Is the Annuity Gamble Worth It? 81</p>
<p>Great–Grandma s Gamble 81</p>
<p>The Power of Mortality Credits 83</p>
<p>What about 50–Year–Olds Should They Buy Personal Pensions? 84</p>
<p>What about Interest Rates? 87</p>
<p>How Can I Use Annuities to Protect against Inflation? 89</p>
<p>Unique and Personal Insurance 90</p>
<p>Chapter 7: A Review of Traditional Investment Accounts 93</p>
<p>Asset Allocation in Your SWP 95</p>
<p>What Should You Put in the SWP? 96</p>
<p>Chapter 8: Introducing the Third Silo Annuities with Guaranteed Living Benefits 99</p>
<p>Guarantees and Growth: How Variable Annuities with Guaranteed Living Income Benefits Work 101</p>
<p>Evaluating an Annuity with Guaranteed Living Benefits: How Should You Choose? 104</p>
<p>Chapter 9: Your Retirement Sustainability: Fundamental Concepts in Retirement Income Planning 107</p>
<p>Which Glasses Will You Wear? 109</p>
<p>How Many Eggs Can You Withdraw from Your Nest? 110</p>
<p>What Should You Protect Against: Floods or Meteorites? 113</p>
<p>Do You Feel Lucky? Pensions, Survival Probabilities, and Spending in Retirement 114</p>
<p>Pensions Change the Game 114</p>
<p>How Does Pensionization Impact Your Retirement Sustainability Quotient? 116</p>
<p>Pension Annuities: Step–by–Step Math 122</p>
<p>The True Gift of Pensionization 124</p>
<p>Chapter 10: The Most Diffi cult Question You Will Ever Have to Answer (About Your Retirement) 125</p>
<p>Retirement Sustainability or Financial Legacy? 127</p>
<p>Pricing Your Inheritance 128</p>
<p>Finding Your Spot on the Frontier 130</p>
<p>Chapter 11: Divvying Up Your Nest Egg 133</p>
<p>Creating a Retirement Plan for Robert Retiree: Cases 1 through 10 133</p>
<p>What Is the Cost to Pensionize? 137</p>
<p>When Should You Pensionize? 140</p>
<p>When Should You Turn Your Living Benefit On? 141</p>
<p>Chapter 12: A Deeper Look at the Promise of Pensionization: Revisiting the Two Gertrudes 147</p>
<p>Activating the Time Machine: Gertrude at Age 65 148</p>
<p>Lifetime Income: Now or Later? The Implied Longevity Yield 150</p>
<p>Lifetime Income: Now or Later? The Role of Changing Interest Rates 152</p>
<p>A Tool to Help with Your Decision: The What If I Wait? Analyzer 155</p>
<p>Moving Beyond Yield: Understanding the Cost–Benefit Trade–off of Pensionizing Your Nest Egg 157</p>
<p>Pensionizing: Financial and Nonfinancial Benefits 160</p>
<p>Summary of Part Two 161</p>
<p>PART THREE: THE SEVEN STEPS TO PENSIONIZE YOUR NEST EGG 163</p>
<p>Chapter 13: Step 1: Identify Your Desired Retirement Income 165</p>
<p>Estimating Your Desired Income from the Top Down 169</p>
<p>Estimating Your Desired Income from the Ground Up 169</p>
<p>Chapter 14: Step 2: Estimate Your Existing Pensionized Income 173</p>
<p>Public Pensions in the United States, United Kingdom, Canada, Australia, and New Zealand 174</p>
<p>How Much Will You Receive? 174</p>
<p>Benefits from a Defined Benefit Pension Plan 175</p>
<p>What If I m Worried about the Future of My DB Pension Plan? 177</p>
<p>Timing the Retirement Decision 177</p>
<p>Completing Step 2 177</p>
<p>Chapter 15: Step 3: Determine Your Pension Income Gap 179</p>
<p>Your Average Tax Rate 180</p>
<p>Your Pension Income Gap 181</p>
<p>Adjusting for Inflation 183</p>
<p>Chapter 16: Step 4: Calculate Your Retirement Sustainability Quotient 187</p>
<p>What Kind of Eggs Do You Have in Your Nest? 187</p>
<p>Filling the Gap 188</p>
<p>Chapter 17: Step 5: Assess Your Plan: Is It Sustainable? 193</p>
<p>Chapter 18: Step 6: Calculate Your Expected Financial Legacy 197</p>
<p>Chapter 19: Step 7: Use Product Allocation to Pensionize the Right Fraction of Your Nest Egg 199</p>
<p>Case Study: Jack and Jill Go Up the Hill (to Fetch a Retirement Income Plan) 200</p>
<p>Step 1: Identify Your Desired Retirement Income 201</p>
<p>Step 2: Estimate Your Existing Pensionized Income 202</p>
<p>Step 3: Determine Your Pension Income Gap 202</p>
<p>Step 4: Calculate Your Retirement Sustainability Quotient 203</p>
<p>Step 5: Assess Your Plan: Is It Sustainable? 204</p>
<p>Step 6: Calculate Your Expected Financial Legacy 206</p>
<p>Step 7: Use Product Allocation to Pensionize Your Nest Egg 207</p>
<p>Summary of Part Three 208</p>
<p>Final Thoughts 209</p>
<p>Notes 213</p>
<p>Bibliography 219</p>
<p>Acknowledgments 221</p>
<p>About the Authors 223</p>
<p>Index 225</p>