This is a community book written by Boglehead forum experts in various aspects of retirement planning. All proceeds go to the National Constitution Center in Philidelphia to honor our friend and mentor, Jack Bogle, who was Chairman for seven years. These excerpts are a small sample of the gems inside its cover:
"The Bogleheads band together to help and encourage all comers to sort through the noise in the persuit of their financial goals. Collectively, the group provides a vast gold mine of wisdom and experience." (Jack Bogle)
"Bogleheads.org is now the largest not-for-profit investment site on the Internet."
"Early retirement planning should begin when you have your first full-time job."
"Without first developing a plan, you begin the journey into your future by looking in the mirror."
"At the beginning, it is the amount that you put into a plan that counts, rather than the return of the investment in the plan."
"When you get started with our investing plan is much more important than what you actually buy."
"Automating your investing means you never have to ask about market conditions."
"Compound growth is your greatest ally when it comes to reaching your investing goals."
"Investing is not nearly as difficult as it looks. -- Simplicity is the master key to investment success"
"Diversify, diversify, diversify. Construct a well-balanced portfolio that owns an appropriate mix of stocks and bonds."
"Performance comes and goes, and yesterday's leaders are likely to be tomorrow's laggards."
"In equity funds, past returns tell us nothing about what the future holds."
"Avoid the salesperson, invest directly with the fund company in pure no-load funds, and keep all of your investment money working for you."
"You rarely, if ever, know something the market does not."
"Self-funded retirement accounts place the responsibility for preparing for retirement squarely on the shoulders of the individual."
"Although Bogleheads tend to be do-it-yourself people, some issues do require the help of a professional."
"Retirement should be viewed as a third phase in life, potentially equal in duration to the earlier development and full-time work phases of life."
"A steady source of income is critical to a happy retirement."
"No matter what your risk tolerance is, your asset allocation should become more conservative as you approach retirement age."
"Everyone should have a written plan that lays out goals for retirement living and the financing that will support them."
"Focus on what brings happiness to your life, and consider your financial resources as a means to that end."
"Taxes erode retirement savings more than any other expense."
"Hold the least tax-friendly investments in your tax-advantaged accounts."
"Taxes are complicated, confusing, frustrating, and a necessary evil."
"At a minimum, you should obtain a copy of Your Federal Income Tax for Individuals, Publication 17."
"Make your fund purchase (in a taxable account) after the distribution date rather than just before it."
"Joint accounts are a great option for ensuring that assets are immediately available to a surviving spouse, child, or partner."
"Trusts can be tricky business. Don't try to write one on your own."
"Buying and selling an ETF incurs commissions and bid/ask spreads on each transacitons."
"If you hold shares for less than 61 days, the dividends you receive will not be qualified, and you'll pay a higher tax rate on them."
"Perhaps the most tax-efficient domestic stock holding for taxable accounts is a total stock market index fund."
"Vanguard's FTSE All-World ex-US (VFWIX) and Vanguard's Total International Stock Market (VGTSX) funds are two of the best options if you're going to hold an internatinal stock fund in your taxable account."
"Low-cost target retirement funds such as those from Vanguard are an excellent way to create an extremely simple portfolio."
"The sooner you need the money, the larger the percentage of cash and bonds you should hold."
"Most CDs are not suitable for an emergency fund because you do not have immediate access to the money (without penalty)."
"You should first take advantage of all of your tax-advantaged options before investing in a taxable account."
"In investing, you get what you don't pay for."
"The Roth IRA is perhaps the greatest gift ever given to the American investor."
"Although a case can still be made for a small business to use a SIMPLE IRA, there is no reason for a sole proprietor to do so."
"You cannot convert an inherited traditional IRA to a Roth IRA, unless you inherited it from your spouse."
"If eventually used to pay for health care, an HSA is better than a traditional or Roth IRA."
"Money that you intend to leave to heirs should be in a Roth IRA, if possible."
"If you have low income, take advantage of the retirement savings credit to further increase your savings."
"Count yourself lucky if you still have a defined benefit plan, but also keep in mind that it may go away in the future."
"Because it is essentially free money, 401(k) matching is one of the best investment options anywhere."
"Unfortunately, a large number of 401(k) plans have truly atrocious investment options with fees 10 or 20 times higher than is reasonable."
"Funds selected by 401(k) providers tend to highlight past performance numbers, which are not at all predictive of future returns."
"Some of the very worst plans seem to be 403(b) plans for teachers."
"Many 457 plans have problems similar to 401(k) and 403(b) issues."
"If you find yourself in a bad plan, contact the trustees and state your discontent."
"Roth 401(k)s are particularly well suited to younger workers who expect to be in a higher tax-bracket at retirement."
"If your plan offers Fidelity funds, stick to the Spartan funds or the Four-in-One, which are indexed funds with costs comparable to Vanguard's."
"If you're selecting bond funds from the (government) TSP, you should use the G fund for most of your bond holdings."
"When you switch employers, you can roll over your defined contribution account into an IRA that gives you complete control of the funds you want to use."
"The word annuity means any regular series of payments, and many different financial products are called annuities."
"Variable annuities or equity-indexed annuities are products to be avoided."
"If you can support yourself entirely from interest and dividends without invading principal, then you do not need to think about an SPIA (Single Premium Immediate Annuity)."
"The usefulness of an annuity should be measured by how well it protects against longevity risk."
"Several experts believe that age 65 is the youngest someone should be before using an immediate annuity."
"Annuities are backed by state guaranty associations to a point, and also by the strength of the insurer."
"Ultimately, the widest diversification possible is simply to own every asset in the particular market."
"Rebalancing means adjusting your portflio to restore its original target allocation."
"Rebalancing also has the added advantage of forcing you to buy low and sell high."
"A straightforward time frame to use for checking if your allocation is out of whack is once a year."
"Rather than rebalancing by the calendar, many people make changes only when their portfolio allocations are off by a certain percentage."
"The method for doing rebalancing really doesn't matter as long as you are consistant."
"Each time you need to withdraw money from your investments, simply look at your asset percentages and take the money out of the one that is overweight."
"Trading costs are minimized by low-turnover funds such as stock index funds."
"A low expense ratio is the single most important reason a fund outperforms similar funds."
"There is a strong tendency for poor performance to follow good performance."
"Instead of chasing performance, simply own the entire market through an ultra-low-cost index fund, and hold for the long term."
"Trying to time your investments by switching frequently between different funds is also a losing strategy. You can guess correctly some of the time, but that does not prove you to be smart or skilled, just lucky."
"Keep investing simple and you will be wealthier and happier for it."
"For the foreseeable future, the viability and benefits of Social Security will keep playing an important part in determining how early you can afford to retire and how comfortable you'll live in retirement."
"Spend some time before you retire: Planning out your budget, estimating changes to your spending, and analyzing your housing situation, asset allocation, investments and taxes.
"Because Medicare does not begin until 65, this becomes the de facto retirement age for many."
"The question isn't at what age I want to retire, it's at what income."
"If you save early and often, live below your means, and do not go off on a rock star lifestyle, there's no reason you should not be able to retire early, on your own terms."
"At any age, you can begin taking withdrawals from your IRA by initiating a five-year or longer program of substantially equal periodic payments (SEPP) and continuing these payments until your turn 59 1/2."
"Reverse mortgages should be a last resort for providing income."
"Life happens. Even the most dogmatic, organized planner cannot predict all life events."
"Your greatest asset is your ability to earn a living for yourself and your family."
"The three main events that can reduce or eliminate your flow of income are death, disability, and retirement."
"For younger breadwinners, term insurance is the only practical way to provide needed protection at affordable costs."
"Consider only policies that are noncancelable and guaranteed renewable."
"Because of an unlimited marital deduction, estate taxes often become due at the second death."
"If you are financially independent, you may not need any life insurance at all."
"Shopping for disability income insurance is complex and should probably be done with the help of a knowledgeable agent."
"A good insurance plan works hand in hand with a good retirement plan."
"The availability of health insurance and its costs and benefits very widely, and it is wise to learn as much as you can before choosing a plan."
"Medicare has four parts: Hospital insurance (Part A); Medical insurance (Part B); Medicare Advantage Plans (Part C); and Prescription drug insurance (Part D)."
"High-risk pools are available in over 30 states. These pools provide coverage for individuals who have serious medical problems and cannot qualify for other coverage."
"Emergency rooms are required by federal law to provide minimal care to all who seek it."
"A 2008 Cost of Care Survey shows the average annual cost of a private nursing home room to be more than $76,000."
"Taking the proper steps now to make sure that your family and financial asets are protected in case of tragedy brings a sense of peace."
"We believe that permanent life insurance should not be used as an investment."
"If you foresee a need for estate liquidity, you should consider life insurance as a way to help solve this problem."
"Insurance policy proceeds can stay out of the gross estate by ownership and beneficiary provisions, including the use of trusts."
"Bogleheads believe in doing the necessary research to learn enough to hold an intelligent conversation with an estate-planning attorney."
"The titling of property has a profound impact on how your assets are treated when you pass away."
"In many states, it is possible to establish an account as a pay on death or transfer account."
"A prenuptial is agreed to before marriage, and a postnuptial is agreed to after marriage."
"Most people will need a durable power of attorney, a designation of health-care surrogatte, perhaps a living will, and a last will and testament to meet their minimum needs."
"Don't delay. Death comes unexpectedly, and with death, most planning opportunities are foreclosed."
"A trust is an arrangement in which one party agrees to manage assets contributed by another party for the benefit of a third party."
"Many things can happen when one fails to plan for business succession, and most of them are bad."
"Planning today for sharing your wealth can save your heirs thousands of dollars in the the future."
"Check with the IRS or an estate-planning attorney before making any financial decisions about gifting. (In 2009 the annual exclusing to anyone was $13,000.)"
"Property acquired from a decedent receives a basis equal to the fair market value at the date of death or six months later."
"Money management and financial planning are two significantly different services that are often bundled together."
"Comprehensive financial planning covers many different fields, including savings strategies, taxation, diversification, investment selection, retirement, and estate planning. If you lack the time, temperament, or experience, then consider the services of a financial planner."
"Salespeople are rewarded if they can convince you to buy high-commission investments and trade them often. That is exactly the opposite of what you should be doing."
"Vanguard offers excellent educational materials on their web site and also provides personal portfolio advice."
"There are 56 different designations for financial advisors. Except for CFP and CFA, many of these designations are not meaningful."
"Risk and return are always related, regardless of what your adviser indicates."
"The more complex the product, the worse it is for you, and the better it is for the adviser."
"If you have any doubts about your financial plan or planner, you can ask the Bogleheads' forum members to comment on your plan."
"In the real world, people lose jobs, good health turns bad, more than half of marriages end in divorce, and other setbacks occur that can ruin a good retirement plan."
"When bad things happen to good people, it does not have to result in financial ruin."
"The divorce court divides a retirement plan by issuing a special order: a qualified domestic relations order (QDRO)."
"Certain assets, such as life insurance and IRA assets, pass to designated beneficiaries if you die. A divorce decree will not change the designations."
"The IRS can always seize money in IRA accounts regardless of state law."
"Even if you do not have the money to pay, always file your tax return on time (to avoid penalties).
"A 10,000 investment in Bogle's Folly (S&P 500 Index Fund) in 1975 was worth $252,000 on December 31, 2008."
"If there is a web site that bespeaks the Golden Rule, surely the Boglehead site is its paradigm" (Jack Bogle)