Retire sooner, retire richer: how to build and manage wealth to last a lifetime

273 Pages·2003·1.404 MB·English

by  Netti, Frank L

RETIRE
SOONER
RETIRE
RICHER
How to Build and Manage
Wealth to Last a Lifetime
F RA N K L . N E T T I
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DOI: 10.1036/0071429034
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Contents
Acknowledgments ix
Introduction 1
Do You Have a Strategy? 5
Don’t Be Fooled by Past Performance 6
Avoiding Big Errors 7
The Why and How of Investing 8
Everyone Retires 10
PART ONE
Understanding Your Retirement Investments
1 The Numbers Game and Retirement Timing 15
The Big Difference: Accumulating Versus Spending 17
Uncertainty and Risk Within Our System 18
Understanding Averages 20
Market Returns Are Variable 22
2 Factors to Consider When Transitioning to Retirement 25
Insurance Needs 28
COBRA 32
Life Insurance and Income Protection 35
iii
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iv CONTENTS
How Much Insurance Will You Need? 36
To Cover Long-Term Care, Spend Down 38
3 Why Some Retirement Plans Fail and Others Succeed 43
Will Your Portfolio Survive? 44
It Is Better to Know the Truth 46
The 1968 Retiree 47
To Make Things Worse: The Average Return Blunder 48
What’s Wrong with Being Right? 48
So Easy to Be Fooled 49
The Great Proposal Failure 51
Just the Facts, Please 52
Comparing Performance 57
You Can Bet on Yourself 59
4 How to Improve Your Money-Management Decisions 63
What Is the Process That Endowments Use? 64
Owning More than One Fund Reduces Risk 66
Setting Return Expectations and Standard Deviations 68
Only Time Will Tell 70
Do You Have Investment Experience? 71
Why Asset Allocation Works So Well 72
What Can Be Learned from Fiduciaries? 75
How Do Endowments Allocate? 77
Stop Trying to Predict the Market 79
PART TWO
Building the Wealth You Need
5 Portfolio Lessons for a Lifetime 85
Some Assumptions Can Be Off 87
At What Risk? 88
CONTENTS v
Success: It’s All in the Discipline 89
It Takes Discipline to Remain Diversified 93
6 Why You Need to Act Now to Live Happily
in Retirement 97
Why Do Retirement Assets Need Protection? 100
Don’t Wait to Learn the Terms 101
Look for the Appropriate Investments 104
7 How to Make the Best Use of Your Retirement
Distribution Options 109
Some of the Rules to Know 110
Substantially Equal Periodic Payment (SEPP) 111
Let’s Get Creative! 113
Your Life Expectancy Is Not Your Own 115
The Social Security Gap 117
The SEPP Spigot 122
Another Use for the SEPP 122
Working Part-Time and Taking SEPP 124
Personally Tailored Advice 126
Lack of Advice Can Cost Plenty 126
8 How You Can Provide Added Income for You
and Your Heirs 129
Choosing an Employee Retirement Pension Option 130
The Cash Balance Election 131
A Simple Case Study 133
Using Life Insurance to Create Income 135
Life Settlement Transactions 136
Purchasing a Viatical as an Investment 137
Company Stock in 401(k) or Shares in Employee Stock
Ownership Plans 139
What Is Income in Respect of a Decedent? 142
Who Are the Heirs to Your Retirement Money? 143
vi CONTENTS
9 How to Use a Rollover IRA to Leave More
to Your Heirs 145
Five-Year Rule and Postdeath Distributions of 401(k)s 147
A Five-Year Rule for Rollovers with More Flexibility
for Heirs 147
Advantage of the Rollover Stretch-Out (or Stretch IRA) 148
Using the Installment Over Life Expectancy Method 150
What Are Required Lifetime Distributions? 151
Summary of the New Required Minimum Distribution
Rules 156
PART THREE
Managing Your Nest Egg
10 The Advisor Advantage 161
Types of Advisors 163
Investigating Designations 165
Locating Planning Help 167
With the Aid of an Advisor Your Behavior Improves 168
Experienced Professionals Have Dealt with Market
Swings 170
How Will Your Portfolio Behave? 171
Beware of Other Biases 173
What We Learn from the Study of Behavioral Finance 174
Unforeseen Issues Can Surface 175
11 Creating a Financial Planning Review 179
What Type of Financial Advisors Offer Financial Planning
Reviews? 181
Asking the Right Questions 183
Keeping You out of Trouble 186
How Can Investment Management Expertise
Add Value? 187
The Process of Deciding 189
Seven Standards for Choosing Money Managers 190
CONTENTS vii
12 The Importance of a Personal Investment Policy 201
Risk Tolerance and Time Horizon 202
The Importance of the Process 206
Investment Process Step 1 206
Investment Process Step 2 208
Investment Process Step 3 210
Concluding Remarks Regarding an IPS 216
Balancing Your Expectations 217
13 How to Pay for Financial Management Advice 219
Fees Associated with IRA, 403(b), 401(k), and Variable
Annuities 222
Comparing Internal Expenses 223
Shop for Yourself 225
Conclusion 226
Evaluating Your Relationship with a Financial Advisor 227
Appendix: How Does the Tax Relief Act of 2001
Help Those Age Fifty and Over Create New Savings
Opportunities? 231
Glossary 235
Resources 249
Index 255
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Acknowledgments
Thanks to my wife, Deborah, for the gifts of love and time. Thanks to
retirees Harry and Cynthia Smith for the initial reading of Chapters 1, 3,
and 4. Thanks to Gene Parrs, Esq., and Richard Scolaro, Esq., for their sug-
gestions on the legal issues. Thanks to Robert Just, CFP, who made sug-
gestions regarding Chapter 11. Thanks to my agent, Terri Brunsdon, and my
editor, Ela Aktay, for their confidence in this book. Thanks to Frank Smith
of Syracuse Design Group for the charts and graphs. A humble thanks to
the team at McGraw-Hill, especially to Katherine Hinkebein and Kelli
Christiansen. And a special thanks goes to Dr. Katharyn Howd-Machan,
poet and writer, for her encouragement, and to my friend Bob Calimeri for
his critical reading of the text.
Ad Majorem Dei Gloriam. This old saying is contributed by one of my
clients, a retired Latin teacher; it means, “Give all glory to God.”
Editor’s note: A portion of the author’s net income from this book will be donated each
year toward low-income workers and their families affected by September 11, 2001, and to
charities serving the hungry and homeless, such as Greater New York Labor-Religion
Coalition, Second Harvest (U.S.), Catholic Relief Services (outside U.S.), and Habitat for
Humanity International.
ix
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