New book, Retirement Income for Life By Fred Vettese

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
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New book, Retirement Income for Life By Fred Vettese

Post by BRIAN5000 »

Another new retirement book and a calculator to play with.

Retirement Income for Life
By Fred Vettese

About Retirement Income for Life: Getting More without Saving More

https://www.morneaushepell.com/ca-en/in ... ncome-life

Review
http://www.moneysense.ca/save/retiremen ... -for-life/
The argument for the “third enhancement” I found particularly compelling: Vettese suggests annuitizing 30% of your registered assets at or near retirement, and then further annuitizing in your 70s.

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Re: New book, Retirement Income for Life By Fred Vettese

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Has anybody played with the retirement income calculator that is available in conjunction with the book?
https://enhancement4.morneaushepell.com/

It's slick, but I've been getting odd results.
For one, there appears to be no question for expected CPP amount. (However, in the pdf result details, it shows an assumption that one will take CPP starting at 70.)
For two, those same results appeared to show my wife and I receiving a combined $30,000 in OAS at my age 53. I wish!
For three, its results projected an income figure for me that didn't square with my inputs.
It's a very user-friendly tool, I'm just not 100% confident in its calculations.
I'd love to hear what others think about it.
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Re: New book, Retirement Income for Life By Fred Vettese

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Interesting calculator. Thanks for posting.
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Re: New book, Retirement Income for Life By Fred Vettese

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fireseeker wrote: 24 Feb 2018 23:28 Has anybody played with the retirement income calculator that is available in conjunction with the book?
https://enhancement4.morneaushepell.com/

It's slick, but I've been getting odd results.
For one, there appears to be no question for expected CPP amount. (However, in the pdf result details, it shows an assumption that one will take CPP starting at 70.)
For two, those same results appeared to show my wife and I receiving a combined $30,000 in OAS at my age 53. I wish!
For three, its results projected an income figure for me that didn't square with my inputs.
It's a very user-friendly tool, I'm just not 100% confident in its calculations.
I'd love to hear what others think about it.
I've just tried it. For the data I've entered, the resulting chart makes no sense. I suspect something's gone bad in the calculator due to lack of maintenance, as the book is now more than 4 years old. (In my personal copy, I see a 2013 copyright; I bought it as an ebook in 2014).
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Re: New book, Retirement Income for Life By Fred Vettese

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fireseeker wrote: 24 Feb 2018 23:28 I'd love to hear what others think about it.
Much like a CHIP Reverse Mortgage or Grey Power insurance it is only available to those who are 50 plus.

:P
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Re: New book, Retirement Income for Life By Fred Vettese

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(In my personal copy, I see a 2013 copyright; I bought it as an ebook in 2014)
You sure the book you have is Retirement Income for Life and not The Essential Retirement Guide.

Publisher: Milner &y Associates Inc. (March 2 2018)
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Re: New book, Retirement Income for Life By Fred Vettese

Post by longinvest »

BRIAN5000 wrote: 25 Feb 2018 11:43
(In my personal copy, I see a 2013 copyright; I bought it as an ebook in 2014)
You sure the book you have is Retirement Income for Life and not The Essential Retirement Guide.

Publisher: Milner &y Associates Inc. (March 2 2018)
Actually, the book I was looking at is The Real Retirement -- Why You Could Be Better Off Than You Think, and How To Make That Happen

So, I guess, Vettese has decided to publish books with similar names every 2 years. I really liked the first book.
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Re: New book, Retirement Income for Life By Fred Vettese

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Just played with the calculator.
Interestingly it gives me a safe withdrawal amount approx. the same as VPW
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Re: New book, Retirement Income for Life By Fred Vettese

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Yes, it seems buggy,

It showed CPP starting at 70, even though I entered the amount of CPP I'm currently receiving (I'm 64).

Also assumes that I will buy an annuity.

Calculated net income seems way to low at about 4% of gross income. Maybe that has something to do with the annuity purchase?
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Re: New book, Retirement Income for Life By Fred Vettese

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Best book on retirement planning that I have read to date. Highly recommended.
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Re: New book, Retirement Income for Life By Fred Vettese

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gaspr wrote: 06 Mar 2018 19:45 Best book on retirement planning that I have read to date. Highly recommended.
In what is it a better book of than his first book, "The Real Retirement"?
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Re: New book, Retirement Income for Life By Fred Vettese

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fireseeker wrote: 24 Feb 2018 23:28 Has anybody played with the retirement income calculator that is available in conjunction with the book?
https://enhancement4.morneaushepell.com/

It's slick, but I've been getting odd results.
For one, there appears to be no question for expected CPP amount. (However, in the pdf result details, it shows an assumption that one will take CPP starting at 70.)
For two, those same results appeared to show my wife and I receiving a combined $30,000 in OAS at my age 53. I wish!
For three, its results projected an income figure for me that didn't square with my inputs.
It's a very user-friendly tool, I'm just not 100% confident in its calculations.
I'd love to hear what others think about it.
I was a bit disappointed that when I attempted to use the calculator I couldn't get past the first question as I am under age 50. Guess I shouldn't be planning my retirement yet. :rofl: :P
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Re: New book, Retirement Income for Life By Fred Vettese

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@longinvest
Well, I did read his other book, but I found it a bit incoherent and confusing. His new book is very much a bogleheads investing approach, combined with CPP deferral, perhaps annuities, and a dynamic spending approach. Very much like what you have been advocating for years. Preaching to the choir for many of us... My only quibbles are that he doesn't spell out the dynamic spending methodology and I don't like that he uses inflated cash flows in all his projections and charts...I prefer "today's dollars...makes it much more intuitive to look at future amounts, less misleading to the average reader.
Last edited by gaspr on 06 Mar 2018 21:47, edited 1 time in total.
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Re: New book, Retirement Income for Life By Fred Vettese

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He also predicts that the next generation of robo advisors will very likely incorporate these decumulation strategies...that would be a welcome addition IMHO. It would make things much easier for my wife if I were to die before her...
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Re: New book, Retirement Income for Life By Fred Vettese

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I'm holding the two books by Vettese (The Essential Retirement Guide and Retirement Income for Life) side by side, and by and large I find the second book to be a dumbed down version of the first. (I hasten to add that there is nothing wrong with that if it helps the book's ideas reach a wider audience.)

The two crucial points are still the same

(1) Use a dynamic withdrawal rate, not a fixed percentage. Unfortunately, neither book gives much guidance as to ho that factor is to be determined -- certainly nowhere near as helpful as longinvest

(2) Annuitize a part of your holdings. The new book seems more precise at first -- annuitize 30 % when you retire, then some more in your seventies. But then Vettese says that, if you have enough money, you needn't do any annuitization before age 75. The latter is the rule I (and others on this forum) figured out a decade ago. Age 75 is still the longevity credit sweet spot, I guess.

Some alternative strategies, such as roll-your-own tontines, seem to have disappeared from the more recent book. Too complicated, I guess.

Vettese still dislikes inflation-indexed annuities, as in his first book, but now adds that the doesn't much care for RRBs. The return is just too low. Of course, he doesn't mention that the real return on RRBs is still the same or higher than on nominal government bonds, which he does like.

All that said, these books are still a cut above your average DIY investment book. Vettese makes sense, and anyone who hasn't been hanging out on this forum for the last decade :wink: would benefit from at least looking at them.

If anyone wants my copy of the more recent book, PM me a mailing address.

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Re: New book, Retirement Income for Life By Fred Vettese

Post by longinvest »

gaspr wrote: 06 Mar 2018 21:27 @longinvest
Well, I did read his other book, but I found it a bit incoherent and confusing. His new book is very much a bogleheads investing approach, combined with CPP deferral, perhaps annuities, and a dynamic spending approach. Very much like what you have been advocating for years. Preaching to the choir for many of us.
Thanks.
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Re: New book, Retirement Income for Life By Fred Vettese

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ghariton wrote: 06 Mar 2018 22:14 Vettese still dislikes inflation-indexed annuities, as in his first book, but now adds that the doesn't much care for RRBs. The return is just too low. Of course, he doesn't mention that the real return on RRBs is still the same or higher than on nominal government bonds, which he does like.
He doesn't seem to share my concept of risk. The real risk, in retirement, is to live much longer than anticipated and not have enough money in the later years. Inflation ravages slowly, but surely, the value of the payment of a (fixed) annuity over time. The longer the time, the lower the purchase power of the fixed payment. As a result, the fixed annuity fails at the exact point in time when it is most needed.
ghariton wrote: 06 Mar 2018 22:14 All that said, these books are still a cut above your average DIY investment book. Vettese makes sense, and anyone who hasn't been hanging out on this forum for the last decade :wink: would benefit from at least looking at them.
When I bought the ebook version of "The Real Retirement", it was the first book I had found that presented a realistic view of retirement, including OAS, CPP/QPP, tax-assisted vehicles (RRSP, TFSA, pension plans, etc.) and additional wealth. One of the aspects I really liked was that he took a mathematical approach to destroy common myths, such as retirement income needing to represent 70% of final pay; he calculated the nonsensical savings rate required to reach such a target. Quite illuminating. It was a breath of fresh air relative to most of the retirement porn usually found in the financial press (and, unfortunately, sometimes in the political arena).

Thanks for the summary. I'll get my public library to order the new book. Hopefully, it'll help a few people.
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Re: New book, Retirement Income for Life By Fred Vettese

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ghariton wrote: 06 Mar 2018 22:14 If anyone wants my copy of the more recent book, PM me a mailing address.
George
Has anyone taken that offer yet?
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Re: New book, Retirement Income for Life By Fred Vettese

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Fred sent me a complimentary copy of his book and I'm paying it forward. I have read all his books and this is a great one for those NOT in receipt of a DB pension. If you are, then you have no worries. My review and book give away at the link below. GLTA!
https://thestockmarketspeculator.blogsp ... -fred.html
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Re: New book, Retirement Income for Life By Fred Vettese

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Quebec wrote: 01 Apr 2018 15:08
ghariton wrote: 06 Mar 2018 22:14 If anyone wants my copy of the more recent book, PM me a mailing address.
George
Has anyone taken that offer yet?
Offer has been taken. Thanks George!
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Re: New book, Retirement Income for Life By Fred Vettese

Post by Mouly »

Apologies if this chart has already been built and shown a thousand times, but I have not seen it before. I just finished the book and made the chart below to show the impact of early or late enrollment in CPP. I just worked with a base of $1,000 for age 65. The columns show the age at which you start collecting (age 60 to 70) and the rows show how much money would have collected by a given age.

So for example starting CPP at age 68 means at age 75 you would have collected $10,016.

The red cells are those which for a given age of death were the worst choice to start enrollment, the yellow are the best.

As would be expected as you live longer and longer the yellow cells start to drift to the right and the deferral to age 70 is the best choice. And even when it is not absolutely the best choice even if you live to age 78 it is still within about 10% of the best choice. So I think I've convinced myself to defer to age 70. That annuity thing though, I can't yet convince myself to go for that.

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Re: New book, Retirement Income for Life By Fred Vettese

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Since 1975 till 2011 I have put $35,000 of my own money(?) in CPP there is a company match component but I don't know how many dollars that was. :oops: I/anybody wants to get some value out of these funds.

This is an annuity with at least some sort of payout if you have a spouse she will receive a survivor benefit more I guess if her CPP is low. If she is receiving the max CPP other than the $2500 death benefit all is lost?

Not sure if I have this right but is there a different optimal choice for single person or a couple, or where both spouses already receive nearly full CPP.

Freds answer to this question "you have bigger problems lack of Breath" or something like that definitely not an answer I like?

Worst case I die before taking CPP estate gets $2500 wife gets survivor benefit?
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Re: New book, Retirement Income for Life By Fred Vettese

Post by fireseeker »

In a G&M piece today, Fred has added yet another bit of evidence to his argument for delaying CPP, one that is not in his latest book:
https://www.theglobeandmail.com/investi ... -cpp-late/

Here are the two graphs that accompany the story:
beforeFV.PNG
beforeFV.PNG (15.85 KiB) Viewed 6202 times
afterFV.PNG
afterFV.PNG (15.22 KiB) Viewed 6202 times
One interesting thing (to me) is the X axis of the second graph. If I understand it correctly, it suggests when it comes to making a choice about whether to take CPP early, at 65, or late, the odds of winning or losing financially barely budge.
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Re: New book, Retirement Income for Life By Fred Vettese

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Here is my review of the book, in four parts, with a few comments.

Retirement income for life: getting more without saving more
Frederick Vettese (2018)
Publisher: Milner & Associates Inc.
218 p.
Paperback, $26.95

Summary
Many books have been written on how to accumulate money for retirement. The issue of how to “decumulate” it, i.e. draw income from one’s nest egg, is much less known to the general public. With this new book, Vettese aims to help retirees remove some uncertainty from their withdrawal strategies, and at the same time draw more income. He writes in the preface that “some of the best decumulation strategies are the kind that only an academic or an actuary can possibly love”, but he intends to explain them and popularize them with this book. He adds that “if your goal is to draw the most income with the least possible risk, you may have to take actions that go against the grain to make it happen”. These actions, which he calls ‘enhancements’, are:

1. Switch from high-cost actively managed mutual funds to low-cost passively managed ETFs
2. Start CPP at age 70
3. Convert 30% of your RRIF to an annuity
4. Adapt spending to portfolio returns during retirement
5. Consider a reverse mortgage in extreme circumstances

The book contains three parts. Part I is “Setting the stage” (Chapters 1-8). It describes the initial income target, how retirement spending changes over time, spending shocks, inheritances, investment risk, and withdrawal strategies that are rejected.

Part II is called “The Strategy” (Chapters 9-17), this is the core of the book, where the five enhancements are described and discussed in detail.

Finally Part III “Making it happen” (Chapters 18-20) considers how employers can help, includes a Q & A chapter, and discusses whether investors should choose the DIY route or not.

Three appendices follow, containing a summary of the book’s takeaways, an introduction to LIFs and RRIFs, and a discussion of the “Morneau Shepell Income Calculator”.
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Re: New book, Retirement Income for Life By Fred Vettese

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PART 1 “SETTING THE STAGE”

Chapter 1 “Making your money last”
Drawing down savings is difficult. Retirees want to enjoy life, but there is the worry of outliving one’s savings. Retirees have to find the best strategy to convert their savings into a steady income. To illustrate the challenge, Vettese introduces a fictional couple, Carl (65) and Hanna (62), who are ready to retire. They’ve saved a total of $550k in registered accounts (mostly RRSPs), have no workplace pensions, and are mortgage-free. At the local bank, they are told to:
• convert their RRSPs into RRIFs
• invest in mutual funds (blended MER of 1.8%)
• allocate 50% to stocks and 50% to bonds
• withdraw 4% of their portfolio in the first year, and increase the amount along with inflation subsequently
• avoid annuities
• start CPP and OAS immediately
Shortly after retirement, stocks crash, then stock prices stay low for a long time. Meanwhile, interest rates go up, hurting long bonds. Also, they are faced with several unexpected expenses over time, leading to extra withdrawals. They keep following the 4% rule, and by the time that Carl is 82, their assets are exhausted. Only CPP and OAS are left. This is the type of catastrophic scenario that a better decumulation strategy will prevent.

Chapter 2 “What type of retiree are you?”
Retirees are classified into four types based on their saving and spending proclivity, and what they spend money on (regular spending versus rainy day spending versus bequests). Vettese notes that “most anxiety in retirement, in fact, stems from the unpredictability of one’s income stream, not the absolute level of income”. The aim of the book is to “offer an alternative decumulation strategy that will wring out much of the variability and lessen anxiety”.

Chapter 3 “Your income target in year 1”
How much income do you need for year 1 of your retirement? The traditional advice for middle to high income individuals and couples is 70% of final (pre-retirement) earnings. But for Carl and Hannah, if the goal is to maintain their standard of living, a 70% replacement rate would be too much. Before retirement they were spending a lot on income tax, children, a mortgage, work-related costs, retirement saving, etc. As a consequence, between the ages of 55 and 65, they were actually spending between 36% and a bit over 60% on “regular spending”, with the figures being grossed up for income tax (to make them comparable with post-retirement income needs). During the last three years, the higher spending was temporarily possible because Carl and Hannah were finally mortgage-free and their children had become independent. The average grossed up spending over the ten year period was only 47%. So a 50% replacement rate makes sense as a target. A “lower income threshold”, the minimum acceptable, might be 40%.

Chapter 4 “Your retirement income target in future years”
Conventional thinking is that retirement income must always increase along with inflation. But this does not correspond to actual spending patterns of retirees. Vettese (2018) reviews longitudinal studies on retirement spending in the UK, Germany and Sweden. Such studies look at the same subjects (actual retirees) over long periods of time, using a large number of households. Based on these studies and other reports, he comes up with the following post-retirement spending guidelines:
• spending is constant in real terms until age 70 (i.e. nominal spending increases along with inflation)
• real spending then declines by 1% a year throughout one's 70s (i.e. nominal spending increases, but by 1% less than the rate of inflation)
• real spending declines by 2% a year in one's 80s
• real spending is flat from age 90 onward
Because household spending is proportional to the square root of household size, the death of one spouse reduces spending by about 30%. Assuming that Carl dies at age 88, the acceptable range of retirement income can be plotted as a function of age.

For middle-income couples, a good portion of the income target will be met by CPP and OAS, which are fully indexed for inflation. Because spending is not expected to be fully indexed, income derived from other sources (RRIF, annuities, …) might not have to be indexed at all, if inflation stays low.

Chapter 5 “Rainy day spending”
The calculations in the previous chapter ignore the possibly of unexpected expenses or income shocks. Think divorce, major home repairs, family emergencies, fraud, medical expenses, long term care. Many of these shocks can be covered from regular income, by a rainy day reserve, by home insurance, or by the Canadian public health system. In other words, “the financial shocks you are most like to encounter in retirement tend to be small enough to be manageable”. Vettese does recommend however setting aside 3-5% of retirement income each year for a “rainy day reserve”. There is no easy solution for divorce cases, and long term care is not discussed much.

Chapter 6 “Planning an inheritance”
Attitudes towards bequests vary. Planning will be easier for people without strong bequest motives, because there will be fewer constraints on the decumulation strategy. Leaving behind a mortgage-free home “might be all the inheritance your children will ever need”.

Chapter 7 “Investment risk”
Stocks are risky but have the potential for good returns, so can’t be avoided. Real estate investing is not for amateurs. Interest rates are low so cash and nominal bonds have low yields. Real return bonds have low real yields, and must be held to maturity to avoid potential capital losses. So Vettese looks at a portfolio of 50% stocks and 50% nominal bonds, for which Monte Carlo simulations were conducted to obtain a range of possible outcomes. Over periods of 10-30 years, the median annualized return of the projections is about 4.5-5.0% nominal, before investment fees. But the fifth percentile scenario over ten years is an annualized return of minus 1.4%. This is the scenario which, when combined with spending shocks, decimated Carl and Hannah’s portfolio in Chapter 1.

Chapter 8 “What not to do”
Several decumulation strategies are examined: (1) the 4% rule; (2) withdraw a fixed percentage of the RIFF balance at the end of the year; (3) spend only the interest and other investment income, but don’t touch the capital; (4) withdraw the minimum required by the RIFF rules. These strategies are based on available assets, but are not directly linked with the income target. The idea of the rest of the book is to show how to produce an income that will meet the target, without a significant risk of prematurely depleting the portfolio.
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