The Savage Number

10/01/2006 12:00 am EST

Focus:

Terry Savage

Author, The Savage Truth on Money

Attention: Baby Boomers this book's for you! Noted financial journalist Terry Savage has hit a home run with this book, whose subtitle is How Much MONEY Do You Need to Retire?

For years, the financial industry has put a tremendous amount of effort and scads of money into attempting to convince investors that we need to be diligent in socking money away for retirement. Yet, as the statistics that Ms. Savage quotes demonstrate, most of us have not done a very good job of it. She cites results of studies that have concluded that 45% of all workers, excluding the value of our homes, have assets less than $25,000. And if that's not bad enough, just 60% of us are currently saving for retirement.

Now, even being in the financial industry and talking with folks everyday who are trying desperately to play catch-up, I was still pretty shocked by those numbers. And Ms. Savage points out two factors that will compound the problem once we reach retirement:

  • We underestimate our savings needs, life expectancy, and the rising cost of healthcare and...
  • We overestimate how much we can withdraw from savings and still have enough money to last through our golden years.
And she believes that although the financial industry has been harping on this subject for decades, it has actually added to the problem by using averages, to help people estimate their needs. Instead, she suggests that every person forecast his retirement needs by taking advantage of Monte Carlo modeling. Nope, it's not gambling, just a very sophisticated methodology that analyzes statistical probabilities and alternatives and arrives at a likely range of probable results.

These models, available at most major financial service firms, as well as on several Internet sites (which she lists in her book), run thousands of simulations that take into account a number of scenarios, including variations in your personal situation, investment strategy, time to retire, spending habits, inflation risks, whether or not you are willing to work in your retirement years, withdrawal needs, and possible bequests or inheritances for your heirs. Her point is this: life is not static and your needs may very well change over time, and averages are just not going to do the job for you.

And while that may seem complicated, the quantitative work is done by a computer, and in most cases, should be supplemented by the aid of a financial advisor who can look at your overall position.

All you really need to do is answer ten key questions supplied by Ms. Savage. Some are the same as those posed by any good financial advisor, including getting a grip on your spending habits and planning and executing a savings/investing program. Others, such as risks to your earnings (including inflation and market swings), making money during retirement, and how long you, personally, expect to live based on your health habits and family history are novel in the industry.

Ms. Savage proposes that we look at retirement in a different manner, calling it retro, or vintage retirement, in which we go back to the times of our grandparents and actually plan to work at some level until we pass away. That may be a hard pill to swallow for many of us, but in most cases, if we do not want to lower our standard of living, and find it impossible to save enough, we will be required to continue earning money during retirement; the alternative is running out before we die.

With pensions falling by the wayside, healthcare costs climbing, and social security failing as a safety net, we may not have a choice. So it's better to plan now for what we would like to do during our golden years.

And that is the key to this book: planning, or taking your head out of the sand. Answering the ten questions will force you to realistically analyze where you are today and where you want to go. The questions aren't difficult and Ms. Savage arms the reader with a plethora of Web sites to help make the task easier, including one of my favorites, which helps you estimate how long you will live. My result was age 94, which made me pretty happy, but added some financial stress!

The rest of the book covers in detail how to save for retirement, the importance of balancing and diversifying your portfolio, generating income during retirement, Medicare and Social Security facts, using your home to generate income, the importance of long-term care insurance, life insurance, and the newest investment vehicles. Ms. Savage also includes a chapter on making all of this work easier using online services to help you get organized, maintain your portfolios, pay bills, and project your retirement needs as your life situation changes.

But the bottom line is: It is up to you. No one can plan your retirement for you; you must take the necessary steps. Time is awastin; pick up this book before it's too late.

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