Pensionize Your Nest Egg

How to Use Product Allocation to Create a Guaranteed Income for Life

Moshe A. Milevsky, Alexandra C. Macqueen

• Publisher: Wiley
• Year: 2015
• ISBN:
  9781119025276
• Edition: 2
• Topic: Crescita personale
• Subtopic: Finanza a livello personale

Guarantee your retirement income with a DIY pension

Pensionize Your Nest Egg describes how adding the new approach of "product allocation" to the tried-and-true asset allocation approach can help protect you from the risk of outliving your savings, while maximizing your income in retirement.

This book demonstrates that it isn't the investor with the most money who necessarily has the best retirement income plan. Instead, it's the investor who owns the right type of investment and insurance products, and uses product allocation to allocate the right amounts, at the right time, to each product category.

This revised second edition is expanded to include investors throughout the English-speaking world and updated to reflect current economic realities.

Readers will learn how to distinguish between the various types of retirement income products available today, including life annuities and variable annuities with living income benefits, and how to evaluate the features that are most important to meet their personal retirement goals.

• Evaluate the impacts of longevity, inflation, and sequence of returns risk on your retirement income portfolio
• Make sense of the bewildering array of today's retirement income products
• Measure and maximize your Retirement Sustainability Quotient
• Learn how your product allocation choices can help maximize current income or financial legacy — and how to select the approach that's right for you
• Walk through detailed case studies to explore how to pensionize your nest egg using the new product allocation approach

Whether you do it yourself or work with a financial advisor, Pensionize Your Nest Egg gives you a step-by-step plan to create a guaranteed retirement income for life.

PART ONE
Why You Need to Build Your Own Pension Plan:
The Most Predictable Crisis in History

1
The Real Pension Crisis

• The Wall Street Journal (United States), October 6, 2014—Pension Dropouts Cause Pinch: “Motorola Solutions Inc. and Bristol-Myers Squibb Co. are the latest companies to cast off billions in pension burdens, fueling a trend that could weaken the government’s ability to protect the payouts other employers have promised millions of retired workers. … Only 14 percent of the nation’s private-sector workers were covered by defined benefit plans in 2011, less than half the 38 percent in 1979. …”
• The Guardian (U.K.), February 22, 2013—Pension scheme membership at 15-year low: “Membership of workplace pension schemes fell for the 11th year running in 2012, to 46% of the British workforce, official figures have shown … Defined benefit pension schemes, also known as final salary, continue to disappear from workplaces … The figures show that 91% of public sector employees with workplace pensions had a final salary scheme in 2012, against just 26% in the private sector.”
• The Globe and Mail (Canada), February 20, 2014—Shift from defined benefit pensions reinforces need for retirement planning: “For decades, most workers relied on a promise of how much they would receive in retirement from their company pensions. … But that pension certainty is fading as many companies—faced with large unfunded liabilities and deficits amid low interest rates—moved employees, especially new recruits, to defined contribution plans that guarantee contributions but not final monthly pensions.”
• The Sunday Morning Herald (Australia), May 10, 2014—Superannuation well managed could avert a huge blowout on pensions: “A recent report by CPA Australia, based on analysis of more than 8,000 households across the nation, claims Boomers—those born between 1946 and 1965—are using super savings as a windfall to prop up lifestyles during their working lives rather than as an investment to be nurtured for the 25 years of retirement expected for the average person reaching 65 years. According to the Actuaries Institute, most people’s superannuation account balances are increasing but will not be enough to meet even a modest lifestyle, regardless of whether it is paid out as a lump sum, converted to an income stream, or ploughed into other investments.”
• The New Zealand Herald, May 9, 2014—Private pensions for the lucky few: “Today, 1 in 10 retired people have an income stream from an occupational pension. … However, by the time today’s 48-year-old arrives at retirement, the number getting any private pension at all will be very few, let alone pensions that are inflation protected. … What will today’s 48-year-old do when she reaches retirement in 2031? How will she make her nest egg last?”

Chances are, if you picked up a newspaper over the past few months, or even years, you saw many alarming articles reporting on the dire state of retirement income systems throughout the regions we are focusing on in this book: the United States, the United Kingdom, Canada, Australia, and New Zealand. Flipping through the pages of your morning newspaper, you can find facts, figures, and commentary on the declining place of pensions in these countries, along with lots of agreement about the need for changes, or discussion about changes that are already taking place. Right now, there’s an active debate about the future of pensions around the world. We are awash in expert commissions, opinions from public-policy think tanks, and calls for reform from ordinary citizens and voters. But what’s the crisis? Why the need for reform? What reform is needed? And what difference does any of this make for you?

Up a Creek without a Pension Paddle

The recent, and very public, debate about the safety of retirement income is replete with startling statistics. In particular, reports quoted by all participants in the discussion note the declining rates of participation in employer-sponsored occupational or workplace pension plans. So let’s review what belonging to this kind of pension plan means for those who participate. The common understanding is that if you participate in a workplace pension plan, when you retire, your “work paycheck” will seamlessly convert to a “retirement paycheck” that you’ll receive for the rest of your life (which means that your relationship with your employer never really ends, as long as you are alive).

The unspoken implication of these discussions, of course, is that people without an employer-sponsored pension are “up a creek … without a pension paddle.” In contrast to the lucky population with employer-sponsored pensions, they will be living on cat food in retirement, counting every penny as the days go by, and constantly fretting about outliving their savings (or if they aren’t worried, they should be!).

At first glance, the available data seem to support this rather bleak picture. Let’s take a look at the pension landscape in the countries where we are focusing our attention:

• In the United States, only 45 percent of the workforce is covered by an employer-sponsored pension plan.
• In the United Kingdom, front-page stories in 2012 announced that the proportion of U.K. workers enrolled in workplace pensions had fallen below 50 percent.
• In Canada, statistics show that a mere 33 percent of the Canadian labor force participated in a registered pension plan in 2012.
• In Australia, the introduction of compulsory superannuation (government-sponsored workplace pension plans) has led to the closure of many of the employer-sponsored pension plans that existed before superannuation: in 1995, there were approximately 4,200 plans, but by 2010, only 168 remained.
• And in New Zealand, coverage of occupational pension plans has been falling over time: the ratio of workers in employer-sponsored pension plans as a percentage of the employed workforce fell from almost 14 percent in 2003 to just over 10 percent in 2011, while in June 2012 the number of people enrolled in KiwiSaver accounts—voluntary long-term savings accounts intended for retirement—was equal to roughly 34 percent of the working-age population.

Ergo, it is no surprise that the public policy question du jour is what to do about those people who aren’t fortunate enough, or savvy enough, to participate in employer-sponsored workplace pension pl...

Table of contents

• Cover
• Titlepage
• Copyright
• Preface
• Introduction
• Part One: Why You Need to Build Your Own Pension Plan
• Part Two: Developing a Sustainable Retirement Solution
• Part Three: The Seven Steps to Pensionize Your Nest Egg
• Final Thoughts
• Bibliography
• Acknowledgments
• About the Authors
• Index
• EULA