Two New Books on Retirement Planning
The new year brought us two new books on retirement planning written by well-known authors – How to Retire with Enough Money (and How to Know What Enough Is) by Teresa Ghilarducci and How to Make Your Money Last (The Indispensable Retirement Guide) by Jane Bryant Quinn. Ghilarducci focuses on key steps for building retirement savings, while Quinn provides a much fuller analysis for both accumulation and de-accumulation. Both are books advisors should read and consider recommending to clients. I’ll summarize and comment on their key points.
Ghilarducci’s book is short (100 pages) but is actually two books in one: advice about retirement planning, concentrating on the accumulation phase, and a critique of America’s retirement system, which she says increasingly places the burden on individuals to deal with risk and complexity. Ghilarducci is a labor economist and the most prominent critic of the current U.S. retirement system. In addition to planning advice, this book provides a summary of her policy views, which were presented in detail in her earlier book, When I’m Sixty-Four.
Jane Bryant Quinn has had a long career as a nationally known commentator on personal finance – producing both books and columns. Her book, Making the Most of Your Money, has become a personal finance classic. In this new book, she provides in-depth advice on many of the financial aspects of retirement planning and also offers useful life-planning insights.
Ghilarducci’s book can be read in one sitting – it’s clear, concise, and entertaining. The central question is how to build sufficient savings to support a sustainable retirement. Ghilarducci proposes accumulating savings of 8- to 10-times pre-retirement earnings as sufficient to replace 70% to 80% of pre-retirement earnings when Social Security is included. Her planning recommendations focus on how to save more and spend less.
While she argues that our 401(k)-based retirement system is woefully inadequate, she makes recommendations about how individuals can best use the system by taking advantage of the employer match. She also cautions against rolling savings from 401(k)s into IRAs, citing reduced protections, but she doesn’t get into the nuances of comparing specific 401(k) versus IRA investment opportunities. She argues for low-cost passive investing and for employees to urge their employers to include low-cost index funds in their 401(k) plans.
The book recommends budgeting and expense reduction approaches that are quite standard in financial planning books, but it also makes the case of downsizing housing prior to retirement. She also makes standard arguments for avoiding high-interest debt and paying off mortgages prior to retirement. The overall theme is how to use compounding to help savings, rather than be a hindrance.
We get away from standard planning recommendations and make more use of Ghilarducci’s professional experience in Chapter 3 on “Working.” She recognizes the benefits of working longer (and delaying Social Security regardless of retirement timing), but cautions about the difference between when people plan to retire versus when they actually do. Workers often end up retiring before they had planned for reasons including changes in health, changes in their business environment, physical demands of the job or the need to care for family members. Bricklayers are more likely to be retire early than college professors. She cautions that those most likely to need late-in-life work are least likely to find it.