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Book Summary – The Big Retirement Risk: Running Out of Money – Written by Erin Botsford
One of Erin’s team members sent me this book yesterday, so I read it. I was a little skeptical, but Erin’s real-world experience of going from a comfortable life to the poor house in one day hits home. How many times have you heard people say about their retirement – “I don’t even open my statements anymore because I’m afraid to look.” This book addresses that fear and more.
Why is this important to me?
I don’t want to waste your time. If you have invested your time in reviewing this summary, then it must be worth it to you. According to Dr. Maslow, people have a hierarchy of needs. The most basic need is that of security. Money can’t buy happiness, but it buys choices and with choices comes freedom. If you were planning to retire in 2008, you saw your 401K portfolio lose its value or more. Think about that impact for a moment. You spend 40 years working and saving your money and it takes all of three weeks to lose half of that savings.
Quality of life should be part of any financial plan. There are many people in their 50s and 60s today who wanted to retire to a vacation home or travel who now find themselves working themselves to death. Fortune 500 executives are now saluting Wal-Mart because a handful of people have exploited our financial system to the brink for a commission.
The Big Retirement Risk is full of great information. For the sake of time, I will outline three main points.
1. Four Myths of Wall Street – 1.) In the long run, the market always goes up. The greatest trick the devil has ever played is to convince the world he doesn’t exist. This is the same as the market is always growing. There are trends of 20 to 30 years from 1900-2011 that the market was flat. So if it was your investment time, lose. 2.) Diversification and Asset Allocation are critical to retirement success – Warren Buffet calls it De-worsification. Being invested in the stock market in different sectors is not diversification. 3) Major Financial Services Companies Give You Options – The opposite is true because the level of expertise required for true personalized retirement plans does not scale well. The risk is too great. 4.) Net Worth Determines Your Lifestyle in Retirement – This is not true. The only thing that matters is positive net cash flow. You can have a car worth a million dollars and not have enough monthly money to pay for gas. Assets must spin off monthly cash flow to be effective.
2. Lifestyle Investing – Erin has an excellent method of investing that deals with needs, wants, likes and desires. The concept is so simple it’s brilliant. Call in all your needs with a guaranteed investment return and then finance the other stages with different types of investments. The only investments that are guaranteed on it are US government issues and insurance products.
The retirement promises from big financial services firms and 401K plans are broken. “It is estimated that 47% of Americans born between 1948 and 1954 will not be able to pay basic expenses and health care costs without insurance due to retirement.” This brings us to our third point.
3. Guaranteed Retirement Income – Erin talks about the power of annuities after 1999. There are many strong arguments to use these types of products for your guaranteed retirement income. To deviate a bit, I employ the infinite banking concept for guaranteed retirement income. This is by far the strongest way to build a solid nest egg and have full control over your money. Treating investment like a business is the true way to success. Both methods use insurance products that provide a guaranteed investment return. Financial gurus who are in favor of mutual funds pooh pooh pooh this idea because the guaranteed returns can be lower than what the market returns in CERTAIN years. I can tell you from personal experience that the dot com crash and the 2008 Financial Meltdown did not affect my banking system, but some of my stock market investments went down the toilet. My guaranteed part went undamaged.
The Big Retirement Risk shows you that survival of the fittest and nature dictates what happens in life. You need to prepare accordingly. Erin profiles in the last section 22 low probability/high impact events that you should be protected from. This part alone makes the book worth reading.
I hope you found this brief summary useful. The key to any new idea is to work it into your daily routine until it becomes a habit. Habits are formed in as little as 21 days. One thing you can take from this book is guaranteed returns. You need to research insurance products and find out if they work for you. Also, understanding the savings/investment strategy for Needs, Wants, Likes and Wishes is very important if you want a secure future.
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