"Save Your Retirement" -- A Gem

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"Save Your Retirement" -- A Gem

Postby Taylor Larimore » Sun Jul 11, 2010 10:51 pm

Hi Bogleheads:

I have just finished reading an excellent book written by Frank Armstrong and Paul Brown: Save Your Retirement--What to do if you haven't saved enough or if your investments were devastated. This book is written primarily for investors with less than 15 years to retirement. The authors selected Vanguard index funds for their portfolio illustrations. Below are a few of the book's valuable excerpts:

"The more you know the better you can plan."

"Just about everyone is unprepared to retire the way they want."

"You are going to need $1 million in assets for every $40,000 a year you will want to spend."

"It is conceivable that you are going to be living a third of your life with no paycheck coming in."

"Almost half of all workers saving for retirement say they have less than $25,000 in total savings and investments."

"Credit cards are a great convenience if used responsibly. But, they are a slow-acting poison for people who don't pay them off in full and on time every month."

"Paying off any outstanding credit card debt should be a priority before beginning an investment program."

"If you are not taking advantage of what IRAs have to offer, your retirement planning has a small--but significant--hole."

"Between age 25 and 65, you could save $200,000 (40 x $5,000) in the IRA. Assuming an average 8% return, that should grow to $1,295,282.59. You can double that amount if you also contribute to a spousal IRA."

"Many 401(k), 403(b), and 457 plans offer substandard and dirt-poor investment choices at outrageous total costs."

"At the very minimum, every individual should have the following instruments in place: Will; Living trust; Durable power of attorney; Durable power of attorney for health care; Guardian for minor children."

"Insurance companies pay obscenely high commissions to the insurance agents and financial planners who pitch annuities."

"The annuity contract looks a lot like the roach hotel: Once you are in, you don't get out."

"It's just about impossible to build a case for variable annuities that makes any economic sense."

"Most financial advisors assume a life expectancy of at least 95"

"Don't over-invest in company stock. That is a huge mistake, as we have seen with one after another major American companies simply vanishing without a trace."

"Over time, stocks have substantially outperformed every investment there is: bonds, cash, real estate, gold, and commodities--even taking the stock market disaster of 2008 into account."

"Use low-cost financial services companies such as Vanguard, Schwab and Fidelity, and discount brokers such as Scottrade and TD Ameritrade for your investments."

"We seem hard wired to spend whatever is in the paycheck and sometimes a little more. Set a savings goal and have that money automatically taken out of your paycheck."

"Even if you have the world's best investment advisor, you are still going to be broke if you don't contribute generously to your retirement accounts."

"Time is an investor's most valuable ally. Returns increase exponentially over time, which is as close to magic as most of us will ever see."

"Serial losers buy into one deal after another that sound too good to be true."

"Odds are, you made some mistakes getting to this point in your financial life, and going forward you can't afford to make many more."

"The IRS is a tough group. If you don't play by their rules, they don't just take their bat and go home, they beat you up with it."

"Temptation is everywhere. Advertisers create demand for junk, and the credit card companies enable our bad behavior."

"In our experience, almost everybody wishes that they had saved more and started earlier by the time they finally stop working."

"You probably don't want to withdraw more than 4% of your retirment savings in any given year, if you do, you run the very real risk of outliving your money."

"Eliminate all consumer debt because it will drown you in fees and interest charges."

"A good part of your equity holding should be in foreign-based stocks. We recommend putting as much as 50% of your stock holding in companies based outside of the U.S."

"If you are self-employed, you can have your own individual 401(k) plan. These are cheap and easy to establish. Just contact one of the major financial firms, such as Vanguard."

"You can stumble into retirement without a clue as to how you want to live, or you can plan to live out your dreams."

"Long Term Care comes in a bewildering variety of contracts, and even many competent life insurance salesmen have insufficient knowledge of the market to properly advise you."

"For a stress-free and enjoyable retirement, there is just no substitute for a generous portfolio at the beginning."

"Don't give up on the equity markets. They are still your best long-term hope of providing yourself with the growth you need to exceed inflation."

Health care costs are one of the biggest threats to retirees.."

"If withdrawal rates were stop lights, 0-4% would be green, 5% would be yellow, and anything above 5% would be red."

"If you haven't done so already, you ought to consolidate your retirement capital accounts in one institution that can provide a single statement."

"Make sure each account has the appropriate beneficiary designations, or Pay on Death (POD) arrangements."

"If you are withdrawing more than 4% a year from your retirement capital, now would be a good time to hunker down, control expenses, and/or consider reentering the work force."

"Pushing back your retirement date is not something that instantly comes to mind. However, it could be a very simple solution to your problem."

"When you boil everything down, you really only have two choices about what you can do with the money you are earning today: You can spend it, or save it for use in the future."

"Although it is possible to 'over-save' for retirement, the problem caused by doing so is a whole lot smaller than waking up one day in your 60s and realize you haven't saved enough."

"Long-term returns show that guaranteed investments track inflation closely, and are actually net losers on an after-tax basis."

"Assuming a modest 3% inflation rate, your real income will be cut by 46% in 20 years."

"One of the surest ways to to destroy wealth is to sell after the market is down."

"Determine your asset allocation based on as reasonable a worst-case scenario that you can tolerate, and then consider yourself committed to endure the ups and downs of the market."

"Accepting market risk is painless when stock markets are climbing ever higher, but it require intestinal fortitude during the inevitable market declines."

"Don't let your company's stock, or any other stock, make up more than 5% of your retirement portfolio. You will never get compensated for risk that could have been diversified away."

"Although it might seem like the only way to recover from a late start or another financial disaster, you try to outperform the worldwide market averages at your peril."

"As with most things in life, it is a good idea to hope for the best and plan for the worst."

"Call the people who hold your mortgage and simply ask whether it would be possible to refinance. Even a 1% drop in your interest rate could save you some serious money."

"Let us say right up front that we have not the slightest clue what the market will do in the short term."

"As long as you believe that the value of the world's economy will continue to grow, you should have confidence that the markets will recover."

"After you have identified the dream (or dreams) you want to fulfill, follow the STAR technique: Make it specific, time-bound, actionable, and relevant. It takes more than wishing to make dreams come true."

Frank uses many Vanguard funds in his personal and client portfolios, and Paul has the majority of his personal assets with the firm As you can tell, we think they are a good outfit."

"Stay the course, keep making your investments in your appropriate asset allocation plan, and increase them if your can."

"Entire new worlds can open up for you the day that work becomes optional. You can learn to fly, scuba dive, hang glide, sail, paint, meditate, windsurf, sky, ice skate--explore the world or your inner self--give back to the community."


Thank you Frank and Paul!

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Postby baw703916 » Sun Jul 11, 2010 11:04 pm

Here's the listing on Amazon.

It looks like a book that will be useful for a lot of people. Thanks for mentioning it, Taylor.

Brad
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Re: "Save Your Retirement" -- A Gem

Postby sscritic » Sun Jul 11, 2010 11:37 pm

Taylor Larimore wrote:Hi Bogleheads:

I have just finished reading an excellent book written by Frank Armstrong and Paul Brown: Save Your Retirement--What to do if you haven't saved enough or if your investments were devastated. This book is written primarily for investors with less than 15 years to retirement. The authors selected Vanguard index funds for their portfolio illustrations. Below are a few of the book's valuable excerpts:

"Between age 25 and 65, you could save $200,000 (40 x $5,000) in the IRA. Assuming an average 8% return, that should grow to $1,295,282.59.

Assuming your $5000 contributions increase over time at the rate of inflation and inflation is 8%, at the end you will have $200,000 real, not $1.295 million. Someone who is 25 today should not think that $1 million will be a lot of money in 40 years. Even if you could earn 4% real (with inflation at 4%), the $1,295,282.59 in 40 years is only worth $269,7903.17 in purchasing power (today's dollars).

Financial writers and advisors should not use examples like this.
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Re: "Save Your Retirement" -- A Gem

Postby HornedToad » Sun Jul 11, 2010 11:44 pm

sscritic wrote:
Taylor Larimore wrote:Hi Bogleheads:

I have just finished reading an excellent book written by Frank Armstrong and Paul Brown: Save Your Retirement--What to do if you haven't saved enough or if your investments were devastated. This book is written primarily for investors with less than 15 years to retirement. The authors selected Vanguard index funds for their portfolio illustrations. Below are a few of the book's valuable excerpts:

"Between age 25 and 65, you could save $200,000 (40 x $5,000) in the IRA. Assuming an average 8% return, that should grow to $1,295,282.59.

Assuming your $5000 contributions increase over time at the rate of inflation and inflation is 8%, at the end you will have $200,000 real, not $1.295 million. Someone who is 25 today should not think that $1 million will be a lot of money in 40 years. Even if you could earn 4% real (with inflation at 4%), the $1,295,282.59 in 40 years is only worth $269,7903.17 in purchasing power (today's dollars).

Financial writers and advisors should not use examples like this.


I agree with your point about considering inflation in calculating the value of something, but why are you assuming a 40 year investment will grow at inflation?

If I take your 4% real example and adjust deposits for inflation also I get a net balance of 475k in real value.
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Re: "Save Your Retirement" -- A Gem

Postby sscritic » Sun Jul 11, 2010 11:50 pm

HornedToad wrote:I agree with your point about considering inflation in calculating the value of something, but why are you assuming a 40 year investment will grow at inflation?

If I take your 4% real example and adjust deposits for inflation also I get a net balance of 475k in real value.

The original example stated that contributions of $5,000 were to be made for 40 years. There was no adjustment for increases in nominal wages nor nominal contributions. You are exactly correct that increased contributions over the 40 years would produce an account with more than $1,295,282.59 nominal and a real value of more than $270k. Your value of $475k sounds reasonable if contributions increase at the rate of 4% a year (e.g., the last contribution will be $24k nominal). The account value is still far short of $1.3 million in real terms.
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Postby Ozonewanderer » Sun Jul 11, 2010 11:52 pm

Taylor,
It's taken me a lifetime to learn what you've just summarized. I really wish I had this book 40 years ago when I first started working!

Thanks for sharing. (Did you TYPE all of that!? )
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Postby DriftingDudeSC » Mon Jul 12, 2010 4:29 am

"Use low-cost financial services companies such as Vanguard, Schwab and Fidelity, and discount brokers such as Scottrade and TD Ameritrade for your investments."

Good advice. Thanks for the posting Taylor.

One quote also mention about placing one's assets with one firm. I'm in the process of transferring assets to Vanguard.

I want to thank all who contribute their financial knowledge and time to help others in this forum.

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40 years too late.

Postby Taylor Larimore » Mon Jul 12, 2010 7:03 am

Ozonewanderer wrote:Taylor,
It's taken me a lifetime to learn what you've just summarized. I really wish I had this book 40 years ago when I first started working!

Thanks for sharing. (Did you TYPE all of that!? )


Hi Ozonewanderer:

I also wish I had read this book 40 years ago.

Yes, I "TYPED all of that!" Bogleheads are worth it.
"Simplicity is the master key to financial success." -- Jack Bogle
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Postby DaleMaley » Mon Jul 12, 2010 7:16 am

"The annuity contract looks a lot like the roach hotel: Once you are in, you don't get out."


Taylor: I really enjoyed that one!!

It is almost as good as the first time I ever saw the term financial pornography that you posted !!
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Postby Lbill » Mon Jul 12, 2010 8:37 am

Taylor - with all that you took the time to type, do we still need to read the book? :)
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Postby Ed 2 » Mon Jul 12, 2010 8:47 am

Lbill wrote:Taylor - with all that you took the time to type, do we still need to read the book? :)



Yes, people need to read over and over again. Books like a reminder how not to react to noise out there and invest . Many of us making mistakes because of emotions.
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Postby DartThrower » Mon Jul 12, 2010 8:57 am

Looks like a great book. I just hope it reaches people who really need it and doesn't just end up "preaching to the choir".
The most amazing coincidence of all would be the complete absence of all coincidences. -John A Paulos
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Purpose of the Gem Collection

Postby Taylor Larimore » Mon Jul 12, 2010 11:41 am

Lbill wrote:Taylor - with all that you took the time to type, do we still need to read the book? :)


Hi Bill:

The extracts that I quoted are only about 2 pages. The book is 207 pages. The extracts are only a sample of what's inside.

The primary purpose of my "Gem Collection" is to provide a quick and concentrated source of reliable investment advice for individual investors.

A secondary purpose is to help investors decide which book is most appealing to read in its entirety.
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Postby Sriracha » Mon Jul 12, 2010 12:04 pm

Ed 2 wrote:
Lbill wrote:Taylor - with all that you took the time to type, do we still need to read the book? :)



Yes, people need to read over and over again. Books like a reminder how not to react to noise out there and invest . Many of us making mistakes because of emotions.


Yeah, I sometimes have trouble "doing" what I read in this area even though I agree with it and understand it when I read it. Reinforcement helps (although I guess I could just periodically re-read TL's gems or the books I already own instead of buying new ones!). There's an exception, of course, for having made an actual costly mistake ... reinforcement is a little quicker there!
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Re: "Save Your Retirement" -- A Gem

Postby allsop » Mon Jul 12, 2010 3:40 pm

sscritic wrote:
HornedToad wrote:I agree with your point about considering inflation in calculating the value of something, but why are you assuming a 40 year investment will grow at inflation?

If I take your 4% real example and adjust deposits for inflation also I get a net balance of 475k in real value.

The original example stated that contributions of $5,000 were to be made for 40 years. There was no adjustment for increases in nominal wages nor nominal contributions. You are exactly correct that increased contributions over the 40 years would produce an account with more than $1,295,282.59 nominal and a real value of more than $270k. Your value of $475k sounds reasonable if contributions increase at the rate of 4% a year (e.g., the last contribution will be $24k nominal). The account value is still far short of $1.3 million in real terms.


W. Bernstein writes in his "Four Pillars of Investing" that using after-inflation numbers simplifies planning, and this is what I do after reading his book. Much simpler to relate to, at least for me, when current living costs are accounted for. The snag is that investing $X year is inflation adjusted, i.e. increase $X by inflation each year.
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Re: 40 years too late.

Postby grap0013 » Tue Jul 13, 2010 3:01 pm

Taylor Larimore wrote:
Ozonewanderer wrote:Taylor,
It's taken me a lifetime to learn what you've just summarized. I really wish I had this book 40 years ago when I first started working!

Thanks for sharing. (Did you TYPE all of that!? )


Hi Ozonewanderer:

I also wish I had read this book 40 years ago.

Yes, I "TYPED all of that!" Bogleheads are worth it.


Taylor,

You have the heart of a saint. If I can even do 10% of your good deeds in a lifetime I'll die a fulfilled man someday.
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Postby thirdcamper » Tue Jul 13, 2010 4:00 pm

Thank you, Taylor, for the excellent post. I've seen Armstrong interviewed on a Morningstar video and thought he was excellent. I'll try to get ahold of the book.
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Postby Rusa » Tue Jul 13, 2010 5:08 pm

Read this nice little book last night.

Constant references to 8% expected returns on investments.

I have never been so fortunate as to receive an 8% return on any investment except a CD I bought once back in the early 80s (and the bank failed and it took months to get the money back out).

Can anyone point me to this investment that provides "8%" returns?

If I thought I could get this type of return on *anything* I'd retire tomorrow. :wink:

(Yes, I'm being facetious here, but I just hate these pie-in-the-sky return scenarios. Anymore, I'm just trying to break even with inflation after 30 years of "investing.")
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Postby Call_Me_Op » Tue Jul 13, 2010 5:16 pm

Good post Taylor. There is one quote with which I disagree.

"If you haven't done so already, you ought to consolidate your retirement capital accounts in one institution that can provide a single statement."

This sounds like what we call a potential "single-point failure."
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8% returns ?

Postby Taylor Larimore » Tue Jul 13, 2010 5:51 pm

Hi Rusa:

Can anyone point me to this investment that provides "8%" returns?


Sure. According to Professor Jeremy Siegel in "Stocks for the Long Run," the U.S. stock market had a long-term compound annual return of 8.4% from 1802 through 1997.

When the professor wrote his book, stocks averaged 12.2% from 1946-1997. Long-term bonds averaged 4.7% from 1802 through 1997.

Of course, no one knows what future returns will be. But I feel reasonably confident that the current period of low stock returns will end as good companies return to profitability.
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Re: 8% returns ?

Postby Ed 2 » Tue Jul 13, 2010 6:07 pm

Taylor Larimore wrote:Hi Rusa:

Can anyone point me to this investment that provides "8%" returns?


Sure. According to Professor Jeremy Siegel in "Stocks for the Long Run," the U.S. stock market had a long-term compound annual return of 8.4% from 1802 through 1997.

When the professor wrote his book, stocks averaged 12.2% from 1946-1997. Long-term bonds averaged 4.7% from 1802 through 1997.

Of course, no one knows what future returns will be. But I feel reasonably confident that the current period of low stock returns will end as good companies return to profitability.


As well as he [Jeremy Siegel ] predicted a grate run in Domestic and International Stocks 2 years ago before they started soaring.

http://finance.yahoo.com/expert/article ... est/118916

The key is :when you buy stocks or Stock Funds.
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Re: 8% returns ?

Postby Rusa » Tue Jul 13, 2010 6:50 pm

Taylor Larimore wrote:Hi Rusa:

Can anyone point me to this investment that provides "8%" returns?


Sure. According to Professor Jeremy Siegel in "Stocks for the Long Run," the U.S. stock market had a long-term compound annual return of 8.4% from 1802 through 1997.

When the professor wrote his book, stocks averaged 12.2% from 1946-1997. Long-term bonds averaged 4.7% from 1802 through 1997.

Of course, no one knows what future returns will be. But I feel reasonably confident that the current period of low stock returns will end as good companies return to profitability.


Guess I found the Boglehead way too late. Or perhaps I was born too late LOL. If only my great, great, great grandfather had invested and let it ride *grin*. Let's hope your confidence is justified :) (and I think it is, actually). Onwards!
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Re: 8% returns ?

Postby Ed 2 » Tue Jul 13, 2010 9:24 pm

Rusa wrote:
Taylor Larimore wrote:Hi Rusa:

Can anyone point me to this investment that provides "8%" returns?


Sure. According to Professor Jeremy Siegel in "Stocks for the Long Run," the U.S. stock market had a long-term compound annual return of 8.4% from 1802 through 1997.

When the professor wrote his book, stocks averaged 12.2% from 1946-1997. Long-term bonds averaged 4.7% from 1802 through 1997.

Of course, no one knows what future returns will be. But I feel reasonably confident that the current period of low stock returns will end as good companies return to profitability.


Guess I found the Boglehead way too late. Or perhaps I was born too late LOL. If only my great, great, great grandfather had invested and let it ride *grin*. Let's hope your confidence is justified :) (and I think it is, actually). Onwards!



I am pretty sure that your great great grandfather was saying the same that time, watching other people making money. :D
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