Larry Swedroe and Kevin Grogan introduce their 2019 book, Your Complete Guide to a Successful and Secure Retirement, as follows: “…failure to plan is to plan to fail. While so many of us have carefully planned our education, career choices, and family responsibilities, we tend to fail to prepare a written retirement life plan that considers, among other things, our passions, financial security, charitable endeavors, relationships, intellectual stimulation, and having fun. …Having a well-thought-out plan is important. However, planning is not a one-and-done event. To be effective, plans must be living things that must be revisited whenever any of the assumptions upon which the plan was based have changed.” Based on their experience in wealth management, mortgage lending and investment banking, they conclude that:
From Chapter 2, “The Discovery Process” (Page 27): “The Discovery process facilitates the crucial conversations that are necessary to develop an actionable and meaningful retirement life plan. Upon completion of the initial Discovery process, you will be well positioned to develop both your investment plan and strategies that ensure your plan is enhanced through customized income tax minimization, the prudent transfer of wealth to family members or charity, and protection from creditors and predators.”
From Chapter 3, “Asset Allocation” (Pages 29, 34-35): “Basically, because of the equity risk premium, the role of equities is to provide growth of the portfolio. The role of bonds then is to have an amount that is sufficient to dampen the risk of the overall portfolio to an acceptable level. …we do not know how you can make an informed decision without utilizing a Monte Carlo Simulator…”
From Chapter 4, “The Investment Policy Statement and the Care and Maintenance of the Portfolio” (Pages 47-48, 53): “A formal investment policy statement (IPS) is the foundation of the investment plan, serving as a guidepost that helps provide the discipline needed to adhere to your strategy over time. …It must be viewed as a living document. Whenever any of the Plan’s underlying assumptions change, the IPS should be altered to adapt to the change… The way to maintain control is through rebalancing… In managing the portfolio for tax efficiency, the most important decisions are at the beginning — making sure asset location decisions are made correctly and utilizing the most tax-efficient vehicles such as core and tax-managed funds.”
From Chapter 5, “Monte Carlo Simulations” (Pages 60, 63-64): “MC simulations allow investors to view the outcomes of various strategies and how marginal changes in asset allocations, savings rates and withdrawal rates change the odds of these outcomes. …you should at least consider breaking up your retirement into three stages [for modeling]. …If you do not have access to a Monte Carlo simulator, are recently retired, or near retirement, we recommend that at age 65 you consider withdrawing just 3 percent a year from your portfolio, adjusting that each year by the inflation rate.”
From Chapter 6, “Investment Strategy Part I: Implementing the Investment Plan” (Pages 69, 72, 76): “…while active management might provide excitement and have entertainment value, the winner’s game is to use passively managed investment vehicles. …a well-designed, structured portfolio maximizes the benefits of indexing, while minimizing, or even eliminating, the negatives. And there is yet another advantage that structured funds can bring — in return for accepting tracking error risk they can gain greater exposure to the factors that have been shown to carry premiums. …Portfolios that provide exposure to multiple factors allow investors to diversify their holdings in more efficient ways than were previously available.”
From Chapter 7, “Investment Strategy II: Reducing the Risk of Black Swans” (Pages 81, 87, 92-93): “The reduction of left tail risk becomes increasingly important as we approach and enter retirement. …you can add risky (and, therefore, higher expected returning) assets to a portfolio and increase its returns more than its risk rose. That is the benefit of diversification across asset classes that are not perfectly correlated. …There are four alternative investments which we believe have equity-like expected returns, but with far less volatility and far less downside risk, while also having low to no correlation of their returns to either stocks or bonds…Alternative Lending…Reinsurance…Variance Risk Premium…Alternative Risk Premium.”
From Chapter 8, “IRA and Retirement/Profit Sharing Plans” (Page 99): “Integrating tax consequences into investment plans can be complex, especially as tax rates and investment values change. There are two ways to address this problem. The first is to tax adjust your current holdings to account for the government’s share. The other approach is to use a Monte Carlo simulation with tax codes built in to determine the odds of success of your investment plan. The simulation will account for the government’s share and give you the estimated odds of your plan succeeding…”
From Chapter 9, “Health Savings Accounts” (Page 108): “…there are three key ways an HSA can serve as a powerful retirement tool. First, the triple tax benefit… Second, the potential for growth by investing your HSA contributions. Third, tax-advantaged investment growth. If you are able to fund medical expenses from your taxable accounts, you can grow your tax-advantaged HSA for use in retirement. And, as with any long-term investing plan, the sooner you are able to take advantage of an HSA, the greater the benefit of compounding.”
From Chapter 10, “The Asset Location Decision” (Pages 110, 112): “…regardless of whether they hold stocks or fixed income investments, investors should always prefer to first fund their Roth IRA or other deductible retirement accounts (IRA, 401k or 403b) before investing any taxable dollars. …use them to hold investments that are the most tax inefficient… …locate higher expected return assets in the Roth accounts and lower expected return assets in traditional accounts.”
From Chapter 11, “Spend-Down Strategies” (Page 119): “Withdrawing first from the taxable account (TA), then from the tax-deferred (TDA), and finally from the tax-exempt (TEA), instead of the reverse order, can add about three years to the portfolio’s longevity. …the most tax-efficient withdrawal strategy can add as much as six years relative to the most inefficient one…”
From Chapter 12, “Social Security” (Page 128): “The ideal time for filing for your benefits is specific to your unique circumstances. Factors such as age, earnings history, marital status, and disability all play roles in determining the proper strategy.”
From Chapter 14, “Longevity Risk: The Role of Annuities” (Page 164): “…DIAs [deferred annuities] and SPIAs [single-premium immediate annuities] can provide higher yields than traditional fixed income. Therefore, it is difficult, if not impossible, for older investors to replicate this enhanced yield by using traditional bonds. That is why most economists agree that there is no better financial hedge for longevity risk than purchasing a DIA.”
From Chapter 15, “The Role of Insurance: The Management of Risk” (Pages 166, 179): “There are important non-investment risks to consider — mortality, disability, and morbidity (specifically the need for long-term care)… Without considering “the worst-case scenario” the financial plan is built with blinders.”
From Chapter 16, “Reverse Mortgages” (Page 188): “Reverse mortgages can be a relatively expensive means of borrowing — at least partly explaining why only about 2 percent of all retired households have used them.”
In summary, U.S. investors will likely find Your Complete Guide to a Successful and Secure Retirement a thoughtful, research-based and comprehensive treatment of retirement planning.
Cautions:
- Much of the cited equity factor research does not adequately address portfolio implementation/maintenance costs. These costs may offset gross factor premiums, with therefore no boost in probability of retirement portfolio success.
- Similarly, the use of indexes for retirement portfolio modeling ignores any costs of creating liquid funds corresponding to those indexes, thereby overstating expectations and reducing probability of retirement portfolio success.
- Some methods described, such as Monte Carlo simulation, are beyond the reach of most investors, who would bear fees for delegating to an investment/wealth manager.
For many studies of and perspectives on retirement investing, see results of this search.
