The Rule of 30: A Better Way to Save for Retirement
book review by Ray Hoger | Member, ARTA Pension & Financial Wellness Committee
This is not a book for you or me; we have already retired. This book is for your children or grandchildren. Many of us may remember the struggles of balancing conflicting financial demands — saving the suggested ten to fifteen per cent, paying off a mortgage, handling childcare, paying off student loans — all the time feeling that we were failing. In his recent book, Frederick Vettese presents a new idea to alleviate the stress of all these simultaneous expenses.
Vettese spent his career as an actuary focused on retirement in the Canadian context. He spent twenty-seven years as the chief actuary for Morneau Shepell, a leading Canadian human resources company focused on pension and benefits administration. He wrote the #1 ranked retirement book in Canada, Retirement Income For Life and his first book, The Essential Retirement Guide. In this, his fourth book, Vettese presents “A better way to save for retirement.”
In The Rule of 30, Vettese uses a story approach (think of The Wealthy Barber by David Chilton) in three parts. The proposition is to save thirty per cent of gross pay, less what one pays for mortgage or rent, child-raising, and other short-term major expenses. As these expenses decline and disappear, more funds are directed to savings. The idea is to smooth out spending over one’s working life, pushing a higher savings rate to later years.
In part 1, we attend a fictitious meeting with the young neighbours (Brett and Megan) and hear the common question: “How much should we save for retirement?” Questions about saving, paying off a mortgage early, investing in stocks and bonds, or dabbling in real estate are discussed. Renting versus owning and target date funds (TDFs) are discussed. A TDF “starts with a heavy weighting in equities and then slowly increases the weighting in bonds over a period of many years.” Vettese presents numerous tables and figures to support his meticulous research as he walks his young neighbours through the intricate world of finance, inflation, and financial forecasts, all in support of his new rule.
Part 2 looks at what the future may hold, with predictions on how bonds, stocks, and interest rates may fare. Through all the possible outcomes, the Rule of 30 weaves its magic.
Vettese goes beyond just detailing how to make the Rule of 30 work.
In part 3, we read a discussion of when to use RRSP versus TFSA savings contributions. The Rule of 30 can be adjusted if either spouse gets a job with a defined benefit pension plan with mandatory employee membership.
The Rule of 30 is a book for a younger generation: those aged 25 to 40. If you know someone in that age range who is struggling with savings goals, this book would be a great recommendation — or gift.
Ray Hoger used to teach high school business education. He has two daughters currently back in university to enhance their futures. Around the next corner for them are many financial challenges including, in due course, retirement. He trusts that this book will help them plan for that eventual corner!