Book Review: The Sleep-Easy Retirement Guide
book review by Blair Lowry | Member, ARTA Pension & Financial Wellness Committee
David Aston is a freelance journalist who started writing about retirement, personal finance and investments in 2007. He has written in print or online for MoneySense, the Globe and Mail, Canadian Business and Morningstar.ca. With low interest rates, volatile stock markets, decline in DB pensions and rising longevity, there are many ways retirement can keep you up at night. Aston takes the perspective that there is no right answer to the key questions for everyone. Rather he is trying to help people find answers that work best for their situation. The book targets the relatively knowledgeable reader but is easy to follow.
Chapter 1 – How can I fit my retirement dreams within my financial reality?
There is no one best path for retirement and no one best retirement for everyone.
Chapter 2 – How big a nest egg will I need?
Aston argues that you do not need the $1M that we often hear about. A basic middle-class level retirement would cost $44,000/year. If a couple who both worked retire at 65, they would get $36,000/year from CPP and OAS with $8,000 coming from savings. At a 4% withdrawal rate, this would require $200,000 in savings.
Chapter 3 – How much do I need to save each year?
In Aston’s view, it makes sense to focus on the mortgage and child-rearing costs first and then focus on saving for retirement later. Aston shows three ways to save $1M by 65.
- Save 10% of salary from age 25 to 65 (the wealthy barber method).
- Start at age 40 saving 6%, increasing by 1% each year until 65.
- Start at age 52 and save 35% each year until 65.
Chapter 4 – How long do I need to work?
The old norm was to retire from your career job at around age 65 and live a life of leisure. Now there are lots of options for second careers or casual jobs. One could work full-time, part-time, consult, be self-employed, do contract or freelance work or volunteer. Working longer or during retirement provides a tremendous impact on your financial security in retirement.
Chapter 5 – How much should I plan to spend in retirement?
People prefer to continue the standard of living to which they have become accustomed. Fortunately, retirement costs a lot less due to the drop-off of child-rearing, housing costs and payroll deductions. One also pays less income tax and has tax perks such as age credit, pension income credit and pension income splitting. Many financial advisors recommend replacing 70% of your peak earnings but Aston argues that 50-60% should generally suffice.
Chapter 6 – How much should I expect from government pensions and when should I start them?
While 65 is considered the standard retirement age, one can take CPP as early as age 60 and CPP and OAS as late as 70. While drawing these benefits early or late is actuarially neutral, some financial planners advise drawing from your riskier assets first and taking the guaranteed benefits later.
Chapter 7 – How much can I draw from my savings each year?
4% is still considered the sustainable withdrawal rate at age 65. Each year before 65 should be decreased by 0.1%/year and each year after 65 could be increased by 0.1%/year.
Chapter 8 – How do I manage my investments in retirement to make my money last?
Common asset allocations for typical retired investors with fairly moderate levels of risk tolerance are somewhere in the range of 60% equity/40% fixed income to 50/50. Aston also argues that annuities may be the best financial product that hardly anybody buys.
Chapter 9 – How do I get the financial advice I need without paying too much?
Full-service advisors are of three types. Mutual fund advisors charge around 2%, brokers charge about 1-1.75% and portfolio managers also run from 1-1.75%. A broker might require a minimum account of several hundred thousand dollars and some portfolio managers require $1M. A broad-based passive ETF (exchange-traded fund) portfolio in a discount brokerage account would charge fees of 0.1-0.2%. Robo advisors typically charge 0.7-1%. One could also hire a fee-for-service financial planner and pay about $2000-$4000 for a comprehensive financial plan.
Chapter 10 – How can I use the value of my home to help my retirement?
Aston says there are essentially three strategies to realize a financial payoff from your home while also covering your accommodation needs. You can sell your home (to finance moving to a retirement/nursing home). You can downsize to a less expensive home (also resulting in lower property tax, insurance, utilities and maintenance). Lastly, you can borrow against the equity in your home (reverse mortgage or HELOC). Aston argues that the reverse mortgage was designed with house-rich, cash-needy seniors in mind. The HELOC (home equity line of credit) tends to appeal to seniors who have great employer pensions.
Chapter 11 – How do I ensure I get good care late in life if I need it?
In this chapter Aston discusses in-home care, retirement residences (both independent living and assisted living) and nursing homes. Aston makes the argument that governments will continue to help pay for seniors’ care because the ageing population turns older Canadians into an even more powerful voting demographic. He also makes the argument that people would be better off protecting themselves against the possibility of high care costs late in life by saving what they would have spent on LTCI premiums rather than purchasing long-term care insurance.
Chapter 12 – How can I save my retirement if my finances get off track?
As was stated in chapter 2, we don’t need to be millionaires to retire. The three actions that you can take that have the most dramatic impact when things go sideways are: save more, work more, or spend less.
At the end of each chapter, Aston includes a conclusion and a list of takeaways (the key points from that chapter).
The Sleep-Easy Retirement Guide: Answers to the 12 Biggest Financial Questions That Keep You Up at Night
by David Aston
Published by Milner and Associates Inc.
Paperback, 215 pages