The New Savage Number

 (full title: The New Savage Number: How Much Money Do You Really Need to Retire? )

About the author
“Terry Savage is a nationally known expert on personal finance, the markets, and the economy. She writes a nationally syndicated financial column for the Chicago Sun-Times. Her articles also appear online at MoneyShow.com, the popular investing website, and also have been featured on Yahoo!Finance and The Street.”

“Terry’s financial expertise comes from experience. She started her career as a stockbroker, and became a founding member -- and the first woman trader -- on the Chicago Board Options Exchange. Savage was also a member of the Chicago Mercantile Exchange where she traded interest rate contracts and currency futures. She is a registered investment advisor for both stocks and futures.” (Bio from TerrySavage.com)

Table of contents
Introduction: Can You Retire?

Part 1 Retro-Retirement
 * Chapter 1 The Savage Number
 * Chapter 2 Time Is Money
 * Chapter 3 The 10 Key Questions

Part 2 Monte Carlo Your Money
 * Chapter 4 The Savage Answer: Monte Carlo Modeling
 * Chapter 5 Saving Up, Drawing Down
 * Chapter 6 Getting It All Together
 * Chapter 7 A Road Map to Monte Carlo

Part 3 Investing for Retirement
 * Chapter 8 Stocks, Bonds, and Chicken Money
 * Chapter 9 Beyond the Basics
 * Chapter 10 One-Step Retirement Investing

Part 4 Streams of Retirement Income
 * Chapter 11 Where Will the Money Come From?
 * Chapter 12 Annuities for Income and tax-Deferred Growth
 * Chapter 13 Social Security and Medicare
 * Chapter 14 How to Turn Your Home into Your Pension

Part 5 Long-Term Care: The Greatest Risk of All
 * Chapter 15 Long-term Care Insurance: Who Needs It?
 * Chapter 16 How to Understand Long-Term Care Coverage
 * Chapter 17 Buying Your Long-Term Care Policy

Part 6 Estate Planning: The Price of Success
 * Chapter 18 What’s Left?

Reader’s review of 1st edition
In spite of the book’s title, this is not a guide to estimating a target dollar savings amount needed for retirement. Rather Ms. Savage uses this book to present a mostly introductory review of a broad range of topics which must be considered for successful retirement planning. A few topics (e.g. Monte Carlo modeling of investment returns and Long-Term Care insurance) are covered in much more depth than the other topics. In my opinion this is somewhat misleading, since the additional coverage might lead the novice to conclude that these topics are significantly more important than the other topics covered in the book.

Early in this book Ms. Savage presents a list of the 10 Key Questions which must be dealt with in retirement planning. These questions are:


 * 1. How long will I live?
 * 2. What will inflation do to the value of my savings?
 * 3. How can I save enough?
 * 4. How should I invest the money I’ve saved for retirement?
 * 5. How much will I spend to live in retirement?
 * 6. How much can I withdraw each month without running out of money?
 * 7. What’s the biggest danger to my retirement plans?
 * 8. How can I earn money during retirement?
 * 9. How can I retain control of my financial life?
 * 10. What if I have money leftover when I die?

The book attempts to give at least a basic answer to every one of these questions, and several are covered in greater detail than the others. From this perspective, The Savage Number makes a good first book for prospective retirees. But it should certainly not be the only book read. For example, the book gives only cursory guidance on the topic of developing a realistic estimate of living expenses during retirement. It suggests to look at your current spending, determine which items will continue into retirement, and add these together to obtain a retirement living expense estimate. For some people this is sufficient, since they will also realize they must also take into account expenses unique to retirement. But it would have been better to have discussed in detail all the categories of retirement expenses that must be accounted for, as well as how inflation will affect them differently over time.

On the other hand, Ms. Savage covers more thoroughly the topic of personal investing and the question of how much money can be regularly withdrawn from these investments without running out of money. To do so she introduces the Monte Carlo approach to estimating investment returns. On the one hand this approach serves the critical need of warning retirees of the danger of planning their finances assuming a constant, steady increase in their investments. But the downside is that she does not sufficiently point out the shortcomings of the Monte Carlo approach, leaving the reader with the impression that any financial advisor using this approach will be able to give them top-notch advice.

For Ms. Savage the biggest danger to anyone’s retirement plans is ignoring the possibility of requiring years of very expensive long-term health care. Such care often costs as much as $75,000 a year (2005 dollars) and is not covered by standard health insurance policies. Her warning is very wise, and the reader would do well to pay careful attention to her rather detailed discussions on this topic.

After reading this book the prospective retiree will have acquired a reasonable foundation for further exploration into the topic of retirement planning. But this foundation will be decidedly qualitative rather than quantitative. Good complementary books would be J.K. Lasser’s Your Winning Retirement Plan by Henry Hebeler or The Bogleheads' Guide To Retirement Planning edited by Larimore, Lindauer, Ferri, & Dogu, since these are much more focused on obtaining realistic numeric estimates of spending during retirement and the savings needed to sustain that spending.