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Pensionize Your Nest Egg: How to Use Product Allocation to Create a Guaranteed Income for Life, 2nd Edition

Book Description

Guarantee your retirement income with a DIY pension

Pensionize Your Nest Egg describes how adding the new approach of "product allocation" to the tried-and-true asset allocation approach can help protect you from the risk of outliving your savings, while maximizing your income in retirement.

This book demonstrates that it isn't the investor with the most money who necessarily has the best retirement income plan. Instead, it's the investor who owns the right type of investment and insurance products, and uses product allocation to allocate the right amounts, at the right time, to each product category.

This revised second edition is expanded to include investors throughout the English-speaking world and updated to reflect current economic realities.

Readers will learn how to distinguish between the various types of retirement income products available today, including life annuities and variable annuities with living income benefits, and how to evaluate the features that are most important to meet their personal retirement goals.

  • Evaluate the impacts of longevity, inflation, and sequence of returns risk on your retirement income portfolio

  • Make sense of the bewildering array of today's retirement income products

  • Measure and maximize your Retirement Sustainability Quotient

  • Learn how your product allocation choices can help maximize current income or financial legacy — and how to select the approach that's right for you

  • Walk through detailed case studies to explore how to pensionize your nest egg using the new product allocation approach

  • Whether you do it yourself or work with a financial advisor, Pensionize Your Nest Egg gives you a step-by-step plan to create a guaranteed retirement income for life.

    Table of Contents

    1. Preface
      1. Preface to the Second Edition
      2. Preface to the First Edition
      3. How to Use This Book
    2. Introduction
      1. Note
    3. Part One: Why You Need to Build Your Own Pension Plan
      1. Chapter 1: The Real Pension Crisis
        1. Up a Creek without a Pension Paddle
        2. Mixing Defined Benefit Apples and Defined Contribution Oranges
        3. It Takes Two to Tango: A Basic Lesson about the Nature of True Pensions
        4. Guarantee versus Ruin
        5. When Is a Pension Not a Pension?
        6. There Ain’t No Such Thing … as a Free Pension
        7. The First True Pensions
        8. Notes
      2. Chapter 2: Planning for Longevity
        1. The Grim Reaper’s Coin Toss
        2. Introducing Longevity Risk
        3. Predicting Future Longevity
        4. How Should You Insure against Longevity Risk?
        5. Will You Get Heads . . . or Tails?
        6. Note
      3. Chapter 3: How the Sequence of Returns Can Ruin Your Retirement
        1. How Long Will the Money Last?
        2. Clockwise Investment Returns
        3. Counterclockwise Returns
        4. Triangles, Bulls, and Bears: The Retirement Income Circus
        5. Can Buckets Bail Out a Poor Sequence of Returns?
      4. Chapter 4: Inflation
        1. What Does This Mean for Retirees?
        2. The CPI-ME and the CPI-YOU
        3. Does the CPI Measure Your Spending?
        4. A Reality Check for Your Retirement Spending
        5. What Have We Learned So Far?
        6. Notes
    4. Part Two: Developing a Sustainable Retirement Solution
      1. Chapter 5: Beyond Asset Allocation
        1. Product Allocation: New Baskets for Your Nest Egg
        2. Three Product Silos
        3. The Spectrum of Retirement Income Silos
        4. How Do the Silos Stack Up?
      2. Chapter 6: An Introduction to Life Annuities
        1. Pension Contributions as Insurance Premiums
        2. Buying a Personal Pension
        3. When Should You Buy an Annuity?
        4. Annuities versus Term Deposits
        5. Is the Annuity Gamble Worth It?
        6. Great-Grandma’s Gamble
        7. The Power of Mortality Credits
        8. What about 50-Year-Olds—Should They Buy Personal Pensions?
        9. What about Interest Rates?
        10. How Can I Use Annuities to Protect against Inflation?
        11. Unique and Personal Insurance
        12. Note
      3. Chapter 7: A Review of Traditional Investment Accounts
        1. Asset Allocation in Your SWP
        2. What Should You Put in the SWP?
      4. Chapter 8: Introducing the Third Silo—Annuities with Guaranteed Living Benefits
        1. Guarantees and Growth: How Variable Annuities with Guaranteed Living Income Benefits Work
        2. Evaluating an Annuity with Guaranteed Living Benefits: How Should You Choose?
      5. Chapter 9: Your Retirement Sustainability
        1. Which Glasses Will You Wear?
        2. How Many Eggs Can You Withdraw from Your Nest?
        3. What Should You Protect Against: Floods or Meteorites?
        4. Do You Feel Lucky? Pensions, Survival Probabilities, and Spending in Retirement
        5. Pensions Change the Game
        6. How Does Pensionization Impact Your Retirement Sustainability Quotient?
        7. Pension Annuities: Step-by-Step Math
        8. The True Gift of Pensionization
        9. Notes
      6. Chapter 10: The Most Difficult Question You Will Ever Have to Answer (About Your Retirement)
        1. Retirement Sustainability or Financial Legacy?
        2. Pricing Your Inheritance
        3. Finding Your Spot on the Frontier
      7. Chapter 11: Divvying Up Your Nest Egg
        1. Creating a Retirement Plan for Robert Retiree: Cases 1 through 10
        2. What Is the Cost to Pensionize?
        3. When Should You Pensionize?
        4. When Should You Turn Your Living Benefit On?
        5. Notes
      8. Chapter 12: A Deeper Look at the Promise of Pensionization
        1. Activating the Time Machine: Gertrude at Age 65
        2. Lifetime Income: Now or Later? The Implied Longevity Yield
        3. Lifetime Income: Now or Later? The Role of Changing Interest Rates
        4. A Tool to Help with Your Decision: The “What If I Wait?” Analyzer
        5. Moving Beyond Yield: Understanding the Cost-Benefit Trade-off of Pensionizing Your Nest Egg
        6. Pensionizing: Financial and Nonfinancial Benefits
        7. Summary of Part Two
    5. Part Three: The Seven Steps to Pensionize Your Nest Egg
      1. Chapter 13: Step 1: Identify Your Desired Retirement Income
        1. Estimating Your Desired Income from the Top Down
        2. Estimating Your Desired Income from the Ground Up
      2. Chapter 14: Step 2: Estimate Your Existing Pensionized Income
        1. Public Pensions in the United States, United Kingdom, Canada, Australia, and New Zealand
        2. How Much Will You Receive?
        3. Benefits from a Defined Benefit Pension Plan
        4. What If I’m Worried about the Future of My DB Pension Plan?
        5. Timing the Retirement Decision
        6. Completing Step 2
      3. Chapter 15: Step 3: Determine Your Pension Income Gap
        1. Your Average Tax Rate
        2. Your Pension Income Gap
        3. Adjusting for Inflation
        4. Note
      4. Chapter 16: Step 4: Calculate Your Retirement Sustainability Quotient
        1. What Kind of Eggs Do You Have in Your Nest?
        2. Filling the Gap
      5. Chapter 17: Step 5: Assess Your Plan: Is It Sustainable?
      6. Chapter 18: Step 6: Calculate Your Expected Financial Legacy
      7. Chapter 19: Step 7: Use Product Allocation to Pensionize the Right Fraction of Your Nest Egg
        1. Case Study: Jack and Jill Go Up the Hill (to Fetch a Retirement Income Plan)
        2. Step 1: Identify Your Desired Retirement Income
        3. Step 2: Estimate Your Existing Pensionized Income
        4. Step 3: Determine Your Pension Income Gap
        5. Step 4: Calculate Your Retirement Sustainability Quotient
        6. Step 5: Assess Your Plan: Is It Sustainable?
        7. Step 6: Calculate Your Expected Financial Legacy
        8. Step 7: Use Product Allocation to Pensionize Your Nest Egg
        9. Summary of Part Three
    6. Final Thoughts
    7. Bibliography
    8. Acknowledgments
    9. About the Authors
    10. Index
    11. EULA