One of Erin’s team members sent me this book yesterday, so I read it. I was a bit skeptical, but Erin’s real world experience of going from a comfortable life to a poor house in one day hits home. How many times has she heard people say about her retirement, “I don’t even open my statements anymore because I’m afraid to look at them.” This book addresses that fear and more.
Why is this important to me?
I do not want to waste your time. If you are investing your time in reviewing this summary, then it has to be worth it to you. According to Dr. Maslow, people have a hierarchy of needs. The most basic need is security. Money may not buy happiness, but it does buy options, and with options comes freedom. If he was scheduled to retire in 2008, he saw his 401K portfolio lose some or more of its value. Think about that impact for a moment. You spend 40 years working and saving your money and it takes you three weeks to lose half of those savings.
Quality of life should be part of any financial plan. There are a number of people in their 50s to 60s today who wanted to retire to a vacation home or travel who are now forced to work themselves to death. Fortune 500 executives now salute Wal-Mart because a handful of people pushed our financial system to the limit to get a commission.
The Big Retirement Risk is packed with great information. For reasons of time, I will outline three main points.
1. Four Wall Street Myths – 1.) In the long run, the market always goes up. The biggest trick the devil has ever played is convincing the world that he doesn’t exist. This is the same as the market always goes up. There are 20-30 year trends from 1900-2011 where the market was flat. Therefore, if that was your investment time, you lose. 2.) Diversification and asset allocation are critical to retirement success – Warren Buffett calls it De-worsification. Being invested in the stock market in different sectors is not diversification. 3) Major Financial Services Firms Give You Choice – The opposite is true because the level of expertise required for true custom retirement plans doesn’t scale well. The risk is too great. 4.) Net worth determines your retirement lifestyle: This is not true. The only thing that matters is positive net cash flow. You may have a million dollar car and not have enough monthly cash to pay for gas. The assets have to derive from the monthly cash flow to be effective.
2. Lifestyle Investing: Erin has a great investing method that deals with needs, wants, likes, and wants. The concept is so simple it’s brilliant. She ensures all her needs with a guaranteed return on investment and then finances the other stages with different types of investments. The only investments she is guaranteed are US government issues and insurance products.
Retirement promises from big financial services companies and 401K plans are broken. “An estimated 47% of Americans born between 1948 and 1954 will be unable to pay living expenses and uninsured health care costs in retirement.” This brings us to our third point.
3. Guaranteed Retirement Income: Erin talks about the power of annuities after 1999. There are some strong arguments for using these types of products for your guaranteed retirement income. To distract myself a bit, I have used the concept of infinite banking for the guaranteed retirement income. This is by far the strongest way to build a strong savings nest and be in full control of your money. Treating investing like a business is the true path to success. Both methods use insurance products that provide a guaranteed return on investment. Pro-mutual fund financial gurus will scorn this idea because guaranteed returns can be lower than market returns in CERTAIN years. I can tell you from personal experience that the dot com crash and financial crash of 2008 didn’t affect my banking system, but some of my stock market investments went down the toilet. My guaranteed slice came through unscathed.
The Big Retirement Risk shows you that survival of the fittest and nature dictate what happens in life. You need to prepare accordingly. Erin outlines in the last section 22 low-probability/high-impact events to protect yourself from. That part alone makes the book worth reading.
I hope you found this short 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 away from this book is the guaranteed returns. You should research insurance products and find out if they will work for you. Also, understanding the savings/investment strategy for needs, wants, likes and desires is very important if you want a secure future.