Book Synopsis & Takeaways – New Rules of Retirement: What Your Financial Advisor Isn’t Telling You – By Warren MacKenzie and Ken Hawkins
Synopsis:
McKenzie and Hawkins’ book deals primarily with the financial aspects of retirement, but it does do a good job of examining some other relevant concepts. It was obviously written with people who have not yet retired in mind, however, its ideas and suggestions certainly could be used by individuals who have already left the workforce. Although half of the book deals with investing, which is only relevant for folks who have money to invest, a lot of what they address should also be of interest to individuals who are, or will be, getting by exclusively on government pensions.
The book is divided into the seven sections or parts listed below. The titles generally give a clear summary or indication of what readers will find covered in each section. These are then broken down into useful chapters, which are identified as rules. I have included a brief summation of the general message being delivered in each section.
1) Understand How Retirement Is Evolving
– examines how retirement is fundamentally changing from how it was in the past , and emphasizes the importance of planning for it.
2) Think About the Retirement Plan That’s Right for You
– points out that retirement is not just about the money, and that there are many other very important considerations (e.g. Health, Meaningful Activities, Relationships, etc.) when developing your own retirement plan
3) Calculate Your Cost of Living in Retirement
– reviews importance of determining in advance what your living cost will be, importance of tracking your expenses, and how spending patterns will change in retirement.
4) Calculate Your Retirement Income
– looks at all potential revenue streams in retirement, and some potential risks to retirees’ financial planning.
5) Follow a Simple and Sensible Investment Process
– advice on simplifying one’s investment strategy in retirement so that assets provide “consistent and predictable income”.
6) Construct a Solid Investment Portfolio
– examines investment options and some of their strengths and weaknesses.
7) Monitor and Manage Your Investments Wisely
– examines what level of involvement you want to take in managing your investments; going it alone, and working with a financial advisor are examined.
My Take and Takeaways:
I was pleased to see that MacKenzie and Hawkins pointed out that retirement was about more than just the financial piece. The following quotes remind us that there are many important considerations that will also help to determine whether we have a happy and fulfilling retirement.
” Retirement is both a process and a life stage. In preparing for retirement, it is not enough to know how much money you will need, where you are going to live, or how you’re going to spend your time. It is also necessary to understand that your attitudes, concerns, and emotions, as well as your financial needs, will change as you age.”
“If you concentrate too much on the financial side of the planning exercise you will end up focusing narrowly on financial security and standard of living, as if these were the only goals in retirement. While you are focusing on financial matters, you can easily overlook some of the other important elements that give meaning and enjoyment to life.”
The chapter that I spent the most time poring over was “Calculate Your Cost of Living in Retirement” This was largely due to the fact that when I bought the book I was looking for detailed information on the tracking of one’s expenses.
At the beginning of this chapter they assert, that “in order to have a financially secure retirement, the proper management of your budget is just as important as the proper management of your investment portfolio” – a statement I sincerely agree with. We might not all have investment portfolios, but we all SHOULD have a budget to manage.
They go on to emphasize the importance of getting a handle on what your expenses will be in retirement, especially in the first few years. They suggest that we “Start by analyzing your current expenses, then adjust those expenses to reflect how your spending patterns will change once you are retired.” This of course speaks to the need to be tracking your expenses for several years before you retire, but if it is too late for that, you need to start right away. As I have suggested in previous articles, they suggest that the preferred way to organize your expenditures is by grouping them into categories (Food, Shelter, Household Operations, etc.)
My take on the table MacKenzie and Hawkins offered for tracking various expenses within their category framework (pg. 68-69) was that it was good, but not a perfect fit for us. In their “Food” category they identified a couple of expenses that I, and probably most others, would consider very separate from food. The first of these was “Alcohol” — possibly getting close to a basic necessity for some, but definitely a separate category.
The second was even more intriguing. My sense of humour does drift towards the dark and disturbed, so I found the inclusion of “Pet Food and Supplies” in the “Food” category to be a lovely play on the classic “seniors dining on dog food” theme. But, anyone who has ever owned a pet knows that they are costly little bits of loveliness, and that all pet-related expenses need to be tracked in a separate category.
MacKenzie and Hawkins reported that they based their categories on those that Statistics Canada uses to calculate the Consumer Price Index. This fact led me to discover Stats Canada’s “Survey of Household Spending” (http://www23.statcan.gc.ca/imdb/p2SV.pl?Function=getSurvey&Id=152606). The 2009 version was offered when I first downloaded it, and now the 2013 version is available. Both were helpful in refining my thinking on where specific expenses might/should be recorded. But, their expense and category organization wasn’t a perfect fit for us either. In the 2013 version of the survey, booze AND cigarettes were listed in the “Food” category. I’m sure Stats Canada has a very good reason for doing it this way; I just don’t know what it is.
Opinion:
All in all, I found MacKenzie and Hawkins’ book a good read, providing much food for thought. I suppose the other reason I enjoyed it, and still refer to it occasionally, is the fact that it generally confirmed that I was on the right path with what I was already doing. A personal bias perhaps.
Book Synopsis & Takeaways – New Rules of Retirement: What Your Financial Advisor Isn’t Telling You – By Warren MacKenzie and Ken Hawkins
