Saturday, February 18, 2012

The Big Retirement Risk Review / Giveaway

Standard retirement advice often is based on your "magic number."  This is how much of a nest egg you need to save.  It's usually a big, big, big number, one that seems almost unrealistic.

And then, standard retirement advice says that you remove some percentage of your nest egg for your living expenses.  Depending on the advice, this could be 4% or 5% or even 8-10%.  The idea is that your nest egg will continue to grow more than you are removing from it, so that you (hopefully) won't run out of money.

In her book The Big Retirement Risk: Running Out of Money Before You Run Out of Time (Greenleaf Book Group Press, 2012), author and financial planner Erin Botsford says that this strategy is fatally flawed.

Botsford shows examples in the book that show how the standard strategy can go completely wrong.  For instance, she gives the hypothetical example of two investors, one who retired in December 1972 and the other retired in December 1973 - only one year later.  Both retired with $250,000 in a stock fund and withdrew 5% per year.  Using this strategy, the one who retired in December 1972 ended up running out of money in 1989, but the one who retired in 1973 still had $859,000 in the account in 2006.

Why?  Because December 1972 was just before a huge stock drop, so the first investor lost much of the value of their account right there.  The second investor retired after the huge stock drop.

Botsford describes many of the myths of Wall Street and the economy to make her point: No one knows what will happen to the stock market, so how do you make sure that your retirement is safe - that you won't run out of money too early?

Botsford suggests a strategy that she calls "Lifestyle Driven Investing."  She asks her clients and readers to figure out what they want out of retirement - their needs such as food and electricity; their wants such as travel and hobbies, likes such as a vacation home, and wishes such as gifts to charity or an inheritance.

She then suggests different types of investments for each of the categories.  Investments for needs are cash-flow driven and very safe; as the categories become less necessary, the suggested investments become more risky but also allow for capital appreciation.

This book really changed my view on retirement investments.  It showed me that the investments necessary to create your nest egg are not the same as those necessary to keep you comfortable and worry-free during retirement.  Although I have many, many years until retirement, I'll keep these ideas in mind as I create my retirement plans.  If you're closer to retirement, this is a must-read for you!

Would you like to read The Big Retirement Risk?  It's available at Amazon.com, or check your local bookstore or library.

Or would you like to get it for free?

Frugal Follies is sponsoring a giveaway for a free copy of The Big Retirement Risk!

To enter, use the Rafflecopter below. 

This contest will end on Friday, March 9, 2012, at 12:01 am. It is open to entrants 18 years and older in the United States of America. If you are the winner, I will contact you via the email address you've left. You will have 72 hours to respond. If you do not respond in that time, you will be disqualified and I will pick another winner.

Good luck!


a Rafflecopter giveaway


(This post may contain affiliate links. Please see my disclosure policy for more information.)

44 comments:

Jennifer Hugens,  February 19, 2012 at 1:54 PM  

We are saving as much as possible in cash and contributing to my husband's 401k up to the company match. We do Roth IRAs every year that we are eligible.

Anonymous,  February 20, 2012 at 12:26 AM  

Your statement you are many, many years from retirement. Are you?
I obviously do not know how old you are but I do know that you have children and anyone old enough to have a child that goes to school is at least pushing mid 20's so let's just say for grins that you are about 27 if you wish to retire when you are 55 or 60 that really does not equal many , many years to save the kind of funds that anyone needs in retirement. Let's not forget that if you are saving for two you need to save twice the recommended amount.
Now all of this said those who are Baby boomers in great position that I know have only managed to save $500K for two people. Given todays prices with gas , food and entertainment what kind of a retirement do you think this really affords two people for say 20 years?
Just some thoughts outside the box.
Also be aware as I was not, In marriage one person can walk away with all the cash even when it is in both names. Believe me I had it happen to me. So at 45 I had worked together to save $400K for each person (working our rears off and putting away every half penny) He now has 1.2 million and I had to start over again from zero. So just be aware. (I am fighting in court to get what is mine but it has been years and it is a slow process)The accounts were labeled with both names and one day he woke up and decided he wanted it all. So he took it.

Coupon Lizzi February 21, 2012 at 3:52 PM  

I am currently paying into a retirement account but hope to establish a roth IRA soon.

Christina,  February 25, 2012 at 2:21 PM  

The best thing you can do to secure your future is to pay off your mortgage as soon as possible.

Mary C,  February 27, 2012 at 1:03 PM  

I contribute to my pension; I contribute to my optional retirement; I have a Roth IRA; I plan to have our house paid off prior to retirement. When my husband retires, we might move to a warmer state where I'd work on another pension plan. We're in good shape.

ighmeg at yahoo dot com

Sarah February 27, 2012 at 7:26 PM  

A monthly contribution in my 403B and my husband's 401K

sparmeland(at)optonline(dot)net

camp3369 February 28, 2012 at 7:36 AM  

I have a 401K at work, other than that, I have nothing. I would love to travel. Maybe I'll hit the lottery!!

Savannah McQueen March 2, 2012 at 10:31 PM  

Please consider linking this up in my Thursday Give Away Blog Hop. Here is the direct link - http://www.hammocktracks.com/2012/03/hammock-home-school-thursday-give-away.html

Rachel March 4, 2012 at 2:50 PM  

Unfortunately our 401K's have been cashed out because of job loss :( Looks like we are starting from scratch!

Tammy T March 4, 2012 at 7:13 PM  

I'm maxing out my Roth and contributing to my 401k.

iwon09@yahoo.com

Elizabeth Ehlen March 5, 2012 at 10:07 PM  

DH has a 401k, but honestly, i don't know anyone my age who actually thinks they will get to retire

ebienic(at)hotmail(dot)com

Robin March 6, 2012 at 10:18 PM  

trying to diversify - investing in real estate, stock/bonds/mutual funds, and our kids :))
robinlscott4 at hotmail dot com

Valerie Taylor Mabrey March 6, 2012 at 11:15 PM  

I have no plan we are just trying to go pay check to pay check let alone the future
vmkids3 at msn dot com

Anonymous,  March 7, 2012 at 1:58 PM  

We are doing 401k and getting out of debt.
shawnac68@hotmail.com

aggcalifornia March 7, 2012 at 7:40 PM  

My husband and I are only 22 but we are interested in learning about how to save money for retirement! Thank you so much!

- lablogs@yahoo.com

Tamar March 7, 2012 at 9:46 PM  

hopefully BEFOre I retire, I will get a nice house and move out of an apartment. that's the plan at least :-) and I hope I have enough $ by then because kids are costly and so are grandkids especially around then!!!!!
Tam S.

corey1971 March 8, 2012 at 5:02 AM  

I'm now on medical disability, but when I was working I saved every month into both a 401k and a IRA. (Corey Olomon)(olomon@hotmail.com)

Karen March 8, 2012 at 11:02 AM  

I have no retirement fund at work, so I put my money in an IRA. Thanks for the giveaway.

President dot peaches at hotmail dot com

Trish March 8, 2012 at 11:27 AM  

I don't have access to a 401k and don't really have a lot of extra money, period, but we wanted to at least start. So I opened up an IRA with my bank and automatically have money transferred there every month. I don't even miss that money now, and as our income grows we'll increase the amount we contribute.

Hifam March 8, 2012 at 1:41 PM  

We are contributing to our roths and 401k's, but I don't think it's enough. I'd love to read this book.
jody h

ashley,  March 8, 2012 at 2:11 PM  

I am going to pay off all my debts hopefully before retirement

ashley.dominguez30@yahoo.com

Crib Couture March 8, 2012 at 2:12 PM  

we try to save but something always happens. It never fails, every time i have something in savings, something breaks or new bills come up or whatever. :(

jadavis March 8, 2012 at 4:30 PM  

I am not doing anything at the moment. I am about to graduate from college so as soon as I get a job, setting up a retirement plan is first on my list!
Jadavis42@students.tntech.edu

daveshir2005 March 8, 2012 at 10:30 PM  

I deposit as much as my company matches into my 401 k.

daveshir2005@yahoo.com

fb/ shirley greenawalt zolenski
twitter,gfc,stumble/ daveshir2005
google +/ shirley pebbles

Marilyn,  March 8, 2012 at 11:56 PM  

We live on my husband's salary and ave mine for retirement.

tosra55 at yahoo dot com

Anonymous,  March 8, 2012 at 11:58 PM  

Not much unfortunately.

Tim Moss, yupbucket@hotmail.com

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