Monday, 25 February 2008

Book Review: The New Retirement by Sherry Cooper

The New Retirement is part prediction and part advice. It describes the economic and social forces changing retirement and then provides advice to individuals on how to prepare for and cope with those conditions. It is a heads-up for all ages from those just starting their working life to those just at the point of retirement.

Right at the start, there is a useful definition of retirement: "A successful retirement for most people is to be physically and fiscally independent and active with love and purpose in their lives." (p.2) Bonus points for that, since so many discussions of retirement just assume everyone is on the same wavelength.

The kind of forces author Dr. Sherry Cooper examines includes: the baby boom, increasing longevity, physical and mental health, immigration, savings rates, interest rates and inflation, global economic performance in western vs emerging countries, company and government pension plans for both the US and Canada. A modest list, n'est-ce pas!? And all of it fits neatly into 235 pages of compact size pages. Somehow she manages this without leaving the impression that is glossy, surface fluff. How does she accomplish this? It is the art of the author - what you leave out is as important as what you put in, in other words, knowing where to put in the detail and where to write one sentence when a whole book could be written. Most likely this is a demonstration of a principle Cooper notes in the book, "Healthy older brains are better at dealing with complex situations, that you have dealt with for many years, having the benefit of so much experience." (p.208) Despite her eye-catching youthful appearance on the dust cover photo, Cooper has spent a lifetime analyzing and forecasting economic data. Her judgments and predictions merit consideration.

Here is a sample of her observations:
  • "Early boomers will get to the financial markets first, before the real onslaught of demand for stocks, bonds and other investment vehicles." (p.25)
  • "... low inflation and relatively low interest rates will be sustained for a prolonged period as potential growth slows with the decline in the growth of the labour force in Canada, the United States, Europe, and Japan. On the flip side, developing world growth will continue at a very rapid pace." (p.65)
  • "The unsustainable promises made by successive governments, primarily to older Americans, could hobble U.S. foreign policy for decades." (p.96)
  • " ... many public sector workers will be assured of gold-plated, fully-indexed pension plans..." (p.143)
  • in the past 25 years, "... A portfolio of long-term government and corporate bonds returned to the investor a compounded annualized return of about 12.5 percent, compared to 9.5 percent for the TSX over that period. ... There is zero likelihood that the next 25 years will offer the same return for bond investors. " (p.161)
  • in retirement, "... it is essential to hold 45 to 65% of your portfolio in stocks" (p.180)
Having set the stage and defined the environment we will face, the book asks and examines questions such as how much does one need to save, what is the required savings rate to achieve this, how much longer would one have to work to make up a shortfall, what type of investments (equities, bonds etc) should one favour given tax considerations and how much can one safely withdraw each year from a retirement account. Much of this material relies heavily on calculations and methods of others in the financial planning field such as William Bengen and his book, Conserving Client Portfolios During Retirement. These chapters give one a good feel for how various factors such as savings rate, withdrawal rate, working time, retirement duration and rate of investment return play off against one another. They do not give specific, unique answers to such questions, since that is impossible and depends on every person's individual circumstances. Instead, the advice is to work out your own answers with the help of a financial advisor.

The book covers other topics than the financial. There are several excellent chapters on being healthy and happy during the years of the "final third of one"s life". The good news is that achieving success is very much influenced by what we do. Eating well, exercising, reading, doing "brain work", being married, having a pet, pro-actively monitoring health to catch treatable disease early and a neutral view of the world, all can contribute to making those years the happiest of all.

The whole book is really an introduction (as noted above, it is short) to the retirement spectrum, but it is an excellent one. I especially like the copious chapter footnotes and 8-page bibliography that allow one to follow up topics of deeper interest.

Now, my quibbles.
  • There is little / not enough treatment of planning for one's death and for a legacy, both financial and otherwise. Cooper herself notes that as one gets older one's mindset turns more to others and what one will leave behind.
  • There's too much on how much better defined benefit pensions are than defined contribution or private plans like RRSPs and 401ks.
  • The many examples in the chapter on "nest egg arithmetic" (the informal term "nest egg" itself starts to get annoying as it is used consistently throughout the book to refer to retirement savings - i.e. call it something else once in a while!) need to be cut down or better organized since the message gets confusing.
  • The investment return assumptions, and especially their uncertainty, need to be more explicit and analyzed. For example, if North American economies are to slow in future, will stock market equity returns follow suit, such that future expected returns of the S&P 500 and/or the TSX will be less? There is a fascinating sentence in footnote 2 on page 219: "Greater diversification into such assets as Real Estate Investment Trusts (REITs), Treasury bills, and short-term bonds, commodity futures, and others could well further improve results, but the historical data are not available to prove that point."
  • The postwar baby boom also happened in the UK (see here and here), contrary to the statement on page 19.
  • The book targets two different audiences (as stated on page 2) - governments and other organizations who must respond to the emerging reality and to individuals planning their own future. Looking at it through individual eyes, I got impatient through especially the early chapters when most of the text would be of note to the former target group. The diffusion of focus and attention takes away from the book.

Despite the quibbles, the book is a valuable and unique, so far as I have seen, addition to the library of those contemplating and planning their own retirement. Its strength is the comprehensiveness of its forward-looking coverage of retirement topics from the standard financial to the physical and mental health aspects as well.

Bottom line, it is well worth a read (and remember, reading is good for your mental health). Four out of five stars. Buy it at Chapters or Amazon.

For those interested, BMO Investorline is hosting a free webcast on retirement by the author, Dr. Sherry Cooper on February 26, 2008. Register here.

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