Pensionize Your Nest Egg Book Review – Milevsky and Macqueen

by Mike Holman

I don’t read a lot of personal finance books.  At one time, I did, but eventually it seemed like I had read them all before.  There are only so many ways to save money and perfect your asset allocation.

When I heard about Pensionize Your Nest Egg, I got excited about a financial book for the first time in a long time.  The book promises to educate the reader on how to use product allocation, namely annuities to pensionize your nest egg – or in other words, create your own guaranteed income stream for life.

Most workers in Canada do not have a guaranteed pension when they retire.  Most of us look longingly at government workers and their gold-plated pensions as we get closer to our own retirements.  Most Canadians will retire using funds from CPP, OAS and likely funds from RRSP, TFSA and eventually RRIF accounts.

There are a number of risks associated with living off a portfolio of mostly stocks, bonds, mutual funds and ETFs.  Poor investment performance would be one significant risk.  What if you have some bad returns early on in your retirement and run out of money?  Annuities are one way to buy a “government pension”.  I’ve been learning a lot about annuities over the past year, and I have to say that they will form part of my retirement plan.

My biggest fear with respect to managing an investment portfolio is that one day, I might not be able to do it.  There will come a time when I would rather trade the potential upside and independence of a personally managed portfolio for a guaranteed income stream.

This book shows you how to do it.

What is in the book

The book starts off explaining the risks of having a non-pensionized retirement plan.

Later, the idea of using annuities to pensionize some or all of your retirement income is introduced.  There is also a brief section on guaranteed lifetime withdrawal benefit (GLWB) products.  Annuities, GLWBs and regular investments are said to form the three silos of your pensionized retirement income.

The last section of the book involves the seven steps of pensionization.  Some of these steps are normal retirement planning steps – estimating retirement income, calculating government pension income.  Other steps are brand new and involve figuring out how much of your portfolio you should convert to annuities to meet your retirement goals.

Who should read this book

I would recommend the book for anyone who is interested in their finances.  However, it will be most useful for individuals who are close to or in retirement since they will be in a position to act on the planning outlined in the book.  While the authors made enormous efforts to make the information accessible to average Canadians, the reality is that this is not a simple subject.  I suspect that someone who doesn’t know much about investing will have a hard time with this book.

What I liked

  • The book is very useful and I don’t know of any similar books on the market.  That could change if I decide to write a retirement planning book.  ;)
  • The writers are not dogmatic in their pensionization. They explain how to assess your current retirement plan and suggest a variety of actions which include not making any changes at all.  There is a lot of leeway in terms of your retirement goals – you can follow some of their method or all of it.
  • Does a great job of explaining how annuities work.

What I didn’t like

  • The book deals more with the theory of pensionization, than the actual practice.  This is exactly what the authors promise, so it’s not a complaint about the book, but rather a suggestion for perhaps a followup book.
  • One of the “silos” is made up of GLWB products which are very expensive.  The book explains that this silo is a hybrid of the other two silos, but I’m not sure why they didn’t just use the two silos of annuities and regular investment products.  Canadian Capitalist had similar thoughts.
  • One of the planning steps involves figuring out your legacy – or how much you want to leave the kids.  This is a valid calculation, but I would question how many non-rich Canadians will worry about how much to leave the kids, when they are worrying about how much they will have to live on.  My legacy plan is to leave the house for the kids.

Conclusion

A very good book.  Two thumbs up!

Stay tuned to the blog – on Wednesday, I’ll be announcing a Pensionize Your Nest Egg book giveaway!  It will be a quick contest with the winners being announced on Friday.

Other reviews of this book

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