Updated on 06.03.13

Review: You’re Fifty, Now What?

Trent Hamm

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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  1. Helping your parents (or inlaws) plan for retirement is such a difficult and emotionally touchy subject. I recently found out that my mother – who is in the age bracket appropriate for this book – has all of her 401k in the cash account!! I knew she is risk averse, but come on!

    Trent, do you have any advice for de-emotionalizing these types of conversations, because I really don’t want to end up strangling my parents?!

  2. Frugal Dad says:

    My mom will be incredibly disappointed to know it will take more than $100k to retire…LOL! I seriously think she plans on working her entire life, but because she raised me as a single mom I can’t fault her for a lack of retirement savings. She did the best she could to get me off on the right foot, and hopefully one day I can help her as well.

    I’m always interested in hearing what multiple the various experts use to calculate the projected balance we’ll need to live off in retirement. The divide by 12, multiple by 230 formula does seem arbitrary, but it gets me close to the number I carry around in my head. Thanks for writing up this review.

  3. Russ says:

    I agree with the importance of tracking net worth, and have recently bought a large piece of graph paper on which I plot my monthly net worth, using the gradually-rising line as motivation.

    However, I only get mortgage statements annually, and certainly don’t get my house valued every month – so, I tend to ignore mortgage balance and equity when calculating my net worth.

    Does anyone else keep close track of mortgage debt and home equity when working out net worth?

  4. Thanks so much.
    What a perfect book for me – I just turned 50.
    Gotta read it.
    Keep posting.

  5. rocketc says:

    I’m glad you included the importance of charitable giving.

  6. Lurker Carl says:

    If you’re wondering why he glossed over debt, it probably has to do with how his financial empire makes money. Most banks make a tidy profit from keeping most folks deep in debt.

    I would think little or no debt by age 50 would be a major component of any strategy for the second half of life. It’s much easier to save or conserve money if you’re reaping interest instead of paying it.

    Yet another good reason to consult a variety of opinions when financially planning your future.

  7. Easton says:

    Hi all,

    I work for a law firm that is investigating the Schwab Retirement Income Fund (SWARX). The law firm is investigating whether the company misled investors about the diversification and safety of the investment fund.

    Specifically, HBSS is looking at whether Fidelity misled investors about the underlying risk in the funds. This includes exposure to the risky sub-prime mortgage market through the inclusion of funds like YieldPlus mutual funds as a part of the Schwab Retirement Income Fund.

    You can learn more about the investigation at http://www.hbsslaw.com/swarx or contact the firm at (206) 623-7292.

    Thought you might be interested….

  8. Debbie M says:

    This comment is in response to your comment on “still searching for a truly strong book on retirement-related issues to recommend.”

    I’m reading a good book on retirement right now written for middle-aged folks: Ralph E. Warner’s _Get a Life: You Don’t Need a Million to Retire Well_. It addresses mostly issues other than finances such as what to do with yourself all day, maintaining social contacts, and keeping in shape. Basically, it’s about how to stay happy and healthy after retirement.

    This book confirms a lot of odd things I’ve always thought (like sometimes grown-ups forget how to have fun), but also shows me some big gaping holes in my life that could negatively impact my happiness if I’m not careful (like not staying close with my family, not staying religious, and focusing too much on physical activities for my social interactions).

    I’m not done yet, but so far it’s very interesting and I highly recommend it.

  9. !wanda says:

    @Lurker Carl: Let’s give the author the benefit of the doubt. After all, he tells you not to use the services of someone like a Charles Schwab retirement consultant. Maybe he’s never been in serious debt, so he doesn’t think it’s important or can’t write about it well? Maybe getting rid of debt is such an obvious move to him that it’s not worth writing much about?

  10. MoneyEnergy says:

    You’re right about the book _The Number_. Written in a very entertaining, journalistic style, but leaves you more anxious than anything about what to do.

    I recall his horrid descriptions of Sun City, Arizona. But there were some really good tidbits in there: books and other authors that I thought I should look up. I’ll still go back to that book to check them out.

    So I’ll remember your recommendation on this one when it’s next time to buy my parents a gift.

  11. !wanda says:

    My grand-advisor (advisor’s advisor) must be over 70 now, and he’s still running a lab, publishing papers, and presumably making his grad students cry. Old professors get good pensions, so he must be working because he enjoys it. That seems to me the ideal kind of retirement.

  12. dugsdale says:

    Thanks, Trent, for the book review. I turn 63 in a week, somehow missed out on a solid pension (“somehow” thanks to a mix of stupidity, denial, and a freelance career in the arts) and I find myself VERY appreciative when books like this come along, since I expect to keep working (out of necessity at least part-time) right up until I join the Choir Angelic.

    So I’ll buy this baby, and complement it with “Start Late Finish Rich,” which I’m working my way through (thanks for that one too, Trent).

  13. Lola says:

    Now what? Now I’m thinking about retiring. I’m 40, my hubby’s 50, we don’t have enough money to stop working, but we’re seriously thinking about working as little as possible, something like ten hours a week each, only making enough money to make ends meet (we live very frugally). Maybe we’re just not ambitious enough, or maybe we’re just very happy doing what we do now, which is not much. Midlife crisis, anyone?

  14. George says:

    @Lola –

    Take a serious look at your expense-income ratios when considering your midlife crisis retirement.

    The one thing that finally sank in was that if I quit the day job even a year earlier than my investments allowed and then took on a part-time job at lower wage is that I would be tied to that part-time job forever. Much less preferable to being able to really quit forever!

  15. Lo. Price says:

    As to #4 above: 60% in equities until age 80 is not that crazy. Unlike past generations, the biggest risk now is not losing half your portfolio to a bear market, but instead outliving your retirement. The only way to keep up with inflation (which will double your cost of living in about 24 years at 3%) and not outlive your portfolio is to invest in stocks. Also, he is not necessarily predicting the lifespan of the average retiree, but the average lifespan of those reading his book. To be blunt, the people reading his book are probably not on the lower end of the socio-economic spectrum and they tend to have lower life expectancies, pulling down the averages.
    @Russ: One warning about tracking net worth; net worth will undoubtedly fluctuate with the rise and fall of the stock market. People in well-diversified portfolios undoubtedly lost 1/3-1/2 or more of their “net worth” from 2000-2002. Just because your net worth decreases (because of the market) doesn’t mean you should fret or make changes to your retirement plan.
    @Lurker: I don’t really understand your comment: “I would think little or no debt by age 50 would be a major component of any strategy for the second half of life.” Little or no debt by 50 would be a major component of a strategy for the first half of life, that is, the half of life before 50, which is probably why he doesn’t go into it much. If you are 50, there is not much more you can say than reduce debt as much as possible, especially high-interest debt, and try to have your mortgage paid off by retirement. If you are seriously in debt at 50 which you are having trouble paying, you can’t really be thinking about retiring in 10-15 years.

  16. A.M.B. A. says:

    I’m in this age group and really appreciate you addressing topics that pertain to us. It serves as a reminder that your readers do come in all income brackets and ages. I enjoy reading your blog and keep up the good work. I don’t mean to sound like your parents, but turning fifty will come sooner than you can imagine.

  17. Lurker Carl says:

    @Lo.Price – Most folks in the first half of life can’t purchase a home without going into debt. Disposing of that mortgage by age 50 will go a long way toward saving serious money for the second half of life. High interest debt is a relative term, remember the interest rates back in 70’s and 80’s? Mortgages and credit cards hovered around the same interest rate because most states limited the maximum interest rate credit cards could charge. And a 5 year CD paid 15% interest – your money more than doubled after 5 years!

  18. John says:

    I agreed with most of the comments, except needing disability insurance in retirment. I’am proud of the fact I helped start ltc. insurance where I worked before I retired.

  19. katy says:

    I’m 47 and this was a great post. I recommend Fred Brock’s books retire well on less than you think and retirement on a shoestring.

    Luck and love to all.

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