Review: You’re Fifty, Now What?

Each Friday, The Simple Dollar reviews a personal finance book.

you're fifty, now whatLately, as my parents and my wife’s parents begin to inch towards retirement, I’ve become quite interested in looking at the financial issues they face at this point in their lives. Their situations are very different – the one thing they have in common is their age, and the title of this book makes it appropriate for all of them.

Along these lines, I’ve read The Number (long on entertainment, short on solid advice) and Start Late, Finish Rich (solid, but repetitive if you’ve read other David Bach books), and thus I’m still searching for a truly strong book on retirement-related issues to recommend to readers who ask.

Since I highly enjoyed It Pays to Talk (Schwab’s excellent book about talking to your loved ones about money issues), I had high hopes for this book. Does it really offer thought-provoking and strong advice on retirement issues, or does it fail to stand out from the pack? Let’s dig in and find out!

Inside You’re Fifty, Now What?

1. Investing Strategies for the Second Half
Schwab’s basic approach is pretty simple. If you’re under 50, you should invest aggressively for retirement – mostly in stocks (and even pretty aggressively within that). When you get over that age, every five years, you should inch it back, moving your investments from stocks into bonds bit by bit.

Even more important, Schwab recommends managing it all yourself. It’s not that hard, the amount that you learn getting your hands dirty in the process, and it’s also cost-effective – if you’re not paying someone to manage your funds for you, you’re putting it in your pocket. I’m hugely in favor of doing it yourself – the ten hours you might spend learning about what’s going on is quickly repaid over a lifetime of superior investments – even a 0.1% improvement annually in your retirement can add up to tens of thousands of dollars over your life, and basic knowledge and good choices are worth a lot more than that.

2. Adding Up What You Have
Calculate your net worth. That’s basically the point of this section of the book, offering up a ton of compelling reasons for doing so and providing a solid guide for walking you through the process. Schwab focuses pretty heavily on the assets part of the balance sheet, for better or worse. I know many people who have a lot of assets coupled with a lot of debt and thus if they focus solely on their assets, they seem rich. Debt is an important part of the picture and I think Schwab doesn’t focus on it enough here, though it is mentioned.

For me, net worth is an essential part of the personal finance picture. I use my (and my wife’s) net worth as the primary gauge of where we’re at financially – not how much money we have in our accounts. Assets minus debts – that reveals the real picture and it’s the only fair way to compare today to the past.

3. Estimating How Much You’ll Need for the Second Half
Schwab uses a rather … interesting calculation to determine how much money you’ll need in retirement. In a nutshell, he says to take your annual expected living expenses, divide them by 12, and then multiply that number by 230 in order to get the amount you need to save. For example, if you want $80,000 a year in retirement, you should divide that by 12 and then multiply by 230 to get you $1.541 million.

The 230 number is pretty arbitrary (Schwab admits it) and is even more arbitrary the farther you are from retirement (inflation has much more time to be a big factor), but it is a pretty compelling calculation. Later in the chapter, Schwab (smartly) suggests adding in an inflation multiplier based on the number of years you have until retirement. For me, that’s about thirty years – a multiplier of 2.8. If I wanted that $80,000 threshold above, I should then be targeting somewhere in the ballpark of $4.2 million as a total the day I retire – a pretty hefty number, indeed, but it’s based on significantly more spending than I do right now. A more realistic number for me is half that – $2.1 million.

4. Choosing Investments for the Second Half
For the most part, Schwab recommends staying at least somewhat aggressive until you’re at least 80. Seriously – he recommends keeping at least 60% of your retirement fund in stocks until you’re 80. That’s pretty aggressive – definitely on the aggressive side of investment advice that I’ve seen.

On the other hand, Schwab is pretty optimistic about retirement itself. He implicitly states that he believes most retirees will live into their eighties, exceeding current life span estimates by quite a bit. In other words, he’s betting on continual improvement in medicine and diet, which will lead to extended lifespans for retirees.

I agree with Schwab’s optimism, actually. I tend to believe that “retirements” will get longer and longer and longer as the years pass and that it’s good to assume that you’re going to live to a ripe old age.

5. Cash Flow in the Second Half: Creating a Paycheck for Yourself
Schwab recommends taking 4-5% per year out of your accounts as a retirement “paycheck,” but no more than 5% each year. With the relatively aggressive portfolios that Schwab recommends in the previous chapter, this effectively ensures that you’ll be able to live forever on your retirement nest egg, which is a good thing.

On the other hand, if you determine that a 5% annual withdrawal across all of your retirement accounts isn’t enough to live on, you need to keep working and socking money hard into retirement. Retiring before you’re ready tacks extra years onto your retirement and also depletes your retirement much more quickly, leaving you much more likely to be without funds in your final years when you need the money most.

What did I learn? Save now, when I’m young.

6. Monitoring and Rebalancing Your Portfolio
This chapter serves as a good primer on portfolio rebalancing whether you’re focused on retirement or not. Once you’ve figured out your target portfolio, the principles of rebalancing are pretty much the same. If one piece of your portfolio is low and another is high (compared to your “ideal” portfolio allocation), buy more of what’s low instead of selling what’s high. If you can, do most of your rebalancing within a retirement account that’s tax-deferred. In other words, pretty typical rebalancing advice.

The most interesting part (to me) is Schwab’s subtle indication that index funds are the way to go. He encourages readers to use comparable index funds as the benchmark to compare their current investments. For example, if you have a large cap fund in your portfolio, use the S&P 500 as your benchmark to make sure the investment is up to snuff. The logical conclusion (to me) is why not just invest in the benchmark and buy something like the Vanguard 500?

7. Getting Help If and When You Need It
Here, Schwab discusses how to find a financial advisor – in other words, how to “talk to Chuck.” Ignoring the expected bias, Chuck actually does a good job here of describing how one should select a financial advisor, including a pretty frank discussion of fee-only, fee-based, and commission-based financial advisors (and not too subtly making a strong case for the fee-only ones unless you need someone to completely manage everything for you).

I confess to expecting this chapter to have a lot of bias towards financial advisors, especially commission-based ones, because that’s how his company makes the most money, but his advice really is pretty solid. Do the research and make the choice that’s right for you. For me, I doubt I ever turn to a financial planner – I get much more value from figuring things out for myself.

8. The Assurance Called Insurance
Health insurance, long-term care insurance, disability insurance, and life insurance – these are the four things that you need to have covered in retirement, according to Schwab. These four insurances together create a safety net, protecting your family against anything that might happen to you.

This advice really applies to anyone of any age, particularly if you have a family that could be severely impacted by a lengthy illness, a disability, or a sudden death, something I mused about recently. Anyone who has a family should at least strongly consider all of these types of insurance.

9. The Fine Art of Estate Planning
The penultimate chapter focuses on estate planning: wills, living trusts, and so forth. Schwab often assumes that the reader has a rather large estate to worry about, something that doesn’t really apply to a young professional. In other words, Schwab’s estate planning advice really does apply to the titular fifty year olds.

The key thing that Schwab mentions here (and it overlaps well with his other book, It Pays to Talk) is that this is a family moment and should be adequately discussed with everyone involved. Secretive decisions do nothing but foster resentment and hard feelings, which are perhaps an unwanted part of your legacy. If you’re making a difficult choice in your planning, have the courage to talk about your reasoning openly with the people involved.

10. Giving Something Back: Some Thoughts on Charitable Giving
You’re Fifty, Now What? closes with a brief look at charitable giving. Schwab’s key advice is straightforward: know what you’re donating to in detail (meaning do the research, don’t just hand cash to anyone that asks and seems to have a decent cause) and also take advantage of any tax benefits that the donation gives you (remember, if your donation is tax-deductible, that effectively means you can donate more).

Schwab doesn’t give any specific charity recommendations, but does advise that if you’re giving a significant amount, you should work with the charity and with a lawyer to maximize the benefit to the charity. It may be that giving money in multiple sums has tax benefits for you or for the charity and thus may allow your donation dollars to stretch further – don’t overlook it.

One aspect of this book that I really like is the inclusion of some very fact-heavy appendices on specific subjects. Doing this enables some specific areas to receive the detailed, fact-based coverage that they need without completely bogging down the main part of the book – things like discussions on durable power of attorney for health care and

how to read a mutual fund prospectus. The print’s a little smaller and the writing is dense, but that’s perfect for this type of material – it’s fact-heavy and the specific bits don’t apply to everyone. This is an approach I’ll look at if I write a book in the future that could use such support.

Is You’re Fifty, Now What? Worth Reading?

If the title of the book fits you – you’re between ten and twenty years away from retirement – then this is the best book on retirement planning I’ve seen. It really addresses the needs of people who are in that particular demographic range, like my wife’s parents, for example.

On the other hand, if you’re outside of that demographic area, it’s not all that helpful. From my perspective, much of the material was either not applicable at all or applicable only in a theoretical sense. I’m more interested in longer-term retirement advice, as I have thirty years (at least) until I retire.

This is a book that I think is great for my father-in-law and my mother-in-law to read. I can see very clearly how the advice would apply wonderfully to their life. As for me, I think it’ll go back on the bookshelf and wait for another twenty years or so. In other words, the title is very appropriate and accurate – if it interests you, the book will interest you, too.

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