Five Books To Retire By
The Wall Street Journal - November 17, 2008
At times, media coverage of the economic crisis can be too much of a good thing: too much detail, too many experts. Taking a step back can help bring some perspective to the story.
That's where your favorite bookstore comes in.
Store shelves, actual and virtual, are stocked with titles that take a long view of investing and can help you plan for a retirement that could easily stretch 20 or 30 years. While publishers issued dozens of books this year about preparing for later life, the most popular ones proved to be about preserving -- rather than increasing -- one's capital.
"When we had a bull market, folks were looking at books on investing. They were much more aggressive," says Dave Hathaway, a Barnes & Noble Inc. buyer for business books. "Now, in a bear market, people are trying to figure out how they can hang on to what they've accumulated."
Here are synopses of some of the most valuable financial-planning books that came out in 2008. They include, among other topics, strategies for assembling storm-resistant portfolios, and advice about designing a second career.
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The message of "The Little Book That Saves Your Assets," by David M. Darst (published by John Wiley & Sons Inc., $19.95), can be distilled into one word: diversify.
Yes, even well-diversified portfolios have suffered this year. But nest eggs built on the principle of asset allocation -- meaning they contain an array of investments -- have fared better than most. What's more, such portfolios will be better-positioned to take advantage of an eventual economic rebound.
The author, a senior investment strategist at Morgan Stanley, says nest eggs ought to reflect an individual's needs and desires, age, a realistic appraisal of how much one is willing to lose -- loss is inevitable, he says -- a recognition of inflation's bite, and an ability to learn about, and buy, different kinds of assets.
Mr. Darst assumes that far too many investors have little or no diversity in their nest eggs. Besides stocks, bonds and mutual funds, he tells his readers to consider inflation-indexed securities, hedge funds, real-estate investment trusts, commodities and even art. Low-cost instruments, such as exchange-traded funds, are especially attractive, Mr. Darst says. In making choices, investors are advised to pay attention to an asset's fees and tax consequences.
This 208-page, coat-pocket-size book also comments on why people often muff planning their financial futures. "We take eight weeks to buy a new necktie or dress but then make investment decisions that affect our entire life and net worth after an eight-minute phone conversation," the author writes. To help his readers avoid such pitfalls, he includes some probing questions to ask a prospective investment adviser.
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When it comes to annuities, invest with caution, advises Steve Weisman in his thorough yet easy-to-read paperback, "The Truth About Buying Annuities" (FT Press, $18.99). While they may be an appropriate part of one's retirement portfolio, annuities can be difficult to understand and, the author says, are "dead wrong for many people."
Mr. Weisman's book is a series of "truths" about annuities, of which he warns, "there is more misleading and downright wrong information" than for almost any other investment product. In an effort to combat that, this volume covers everything from plain-vanilla annuities to their exotic flavors, such as split, equity-indexed and variable, and how to choose among them -- or not.
Potential buyers would do well to focus on the upfront -- and hidden -- fees that attach themselves to annuities like barnacles. They can "dramatically" reduce the payout, Mr. Weisman cautions.
And while an annuity can be a good fit for some nest eggs, the author suggests that pre-retirees put most of their money into 401(k)s and IRAs. "Frankly, unless you expect to hold your annuity for at least 15 years, you are better off just buying index mutual funds," he concludes. A lecturer at Bentley College in Waltham, Mass., Mr. Weisman hosts "A Touch of Grey," a nationally syndicated radio show aimed at "grown-ups."
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"The Smartest 401(k) Book You'll Ever Read," by Daniel R. Solin (Perigree, $19.95), is a polemic against what the author contends is a "seriously broken retirement system."
A registered investment adviser and financial columnist for the online Huffington Post, Mr. Solin blames numerous villains -- selfish employers, Wall Street brokers, preying salespeople, annuity peddlers and the financial media -- for the paltry returns many current and future retirees can expect.
"There's strong evidence that 401(k) plans as a whole underperform the markets," Mr. Solin says, attributing some of that to their hidden costs and fuzzy performance reports that mislead recipients. The book urges individuals to pay much more attention to the composition and likely payouts of their retirement plans. Besides 401(k)s, it deals with 403(b) and 457(b) plans, designed for teachers and government and nonprofit employees.
The book favors index funds, which carry lower fees than most traditional mutual funds. Over time, the cost difference can be significant. Roth IRAs also have Mr. Solin's blessing, while he uses the term "bloodsucking territory" in addressing many annuities designed for 403(b) plans, because of their high fees. Finally, he suggests that individuals retain "a fully independent advisor who has no interest in selling any product."
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The typical household head approaching retirement has a nest egg of only $60,000 -- far less than one is likely to need, given lifestyle desires, health-care costs and longevity predictions.
"Working Longer: The Solution to the Retirement Income Challenge," by Alicia H. Munnell and Steven A. Sass (Brookings Institution Press, $29.95), offers a prescription that readers may find a bitter pill: keep working. Rather than retiring and drawing Social Security at age 62 -- today's average -- most people should stay on the job until they're around 66, the authors contend.
The pair, who direct Boston College's Center for Retirement Research, have studded their brief, well-organized book with tables, charts and graphs. But some compelling counterarguments that are included undercut some of the authors' advice. Also, at times the text is repetitive.
If the sea change they advocate is to occur, individuals, employers and government all must act. One suggestion from the authors: Congress might let older employees, those with 35 or 40 years of covered earnings, opt out of paying Social Security while still on the job. This would lower employer payroll taxes and, presumably, make retaining older workers more economically attractive.
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For those who want to continue working -- but for themselves -- retired educators Dennis and Martha Sargent have written "Retire -- And Start Your Own Business" (Nolo, $24.99).
It's an extensive how-to workbook that seeks to find the best fit for the would-be entrepreneur. Starting with a detailed self-appraisal that results in a personal motivation and financial profile, the reader is guided through the thicket of business possibilities, either to an appropriate one or to the conclusion that going into business for oneself probably isn't a good idea.
A series of questions, such as "Why do you want to start a business?" "Where will you live?" "How much time do you want to spend working?" and the crucial "Will you have enough money?" make up the book's first half. The answers help navigate the second half -- a compendium of basics that any would-be businessperson would need to master.
Various business models -- partnerships, corporations, dealerships, franchises, etc. -- are explained. Also, there are primers on finance, taxes, contract components, the implications for one's health-care coverage and even how to name your business.
Sprinkled with brief examples of real individuals' success and failures, the book contains "reality checks" to keep the reader from being led astray by unbridled ambition. One such reminder: "There are only 168 hours in a week." The volume comes with a CD-ROM so the user can print out questionnaires, worksheets and forms.
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