LIVE LONG &PROSPER! Invest in Your Happiness, Health, and Wealth for Retirement and Beyond STEVE VERNON John Wiley & Sons, Inc.
LIVE LONG &PROSPER!
LIVE LONG &PROSPER! Invest in Your Happiness, Health, and Wealth for Retirement and Beyond STEVE VERNON John Wiley & Sons, Inc.
Copyright 2005 by Steve Vernon. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services, or technical support, please contact our Customer Care Department within the United States at 800-762-2974, outside the United States at 317-572-3993 or fax 317-572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data: Vernon, Steven G., 1953- Live long and prosper! : invest in your happiness, health, and wealth for retirement and beyond / Steven Vernon. p. cm. Includes index. ISBN 0-471-68344-2 (pbk.) 1. Retirement United States Planning. I. Title. HQ1063.2.U6V47 2005 646.7'9 dc22 2004022894 Printed in the United States of America. 10 9 8 7 6 5 4 3 2 1
To all my friends, colleagues, and family who helped me with this book. Your support was essential, and confirms for the thousandth time that we are all one. And to those of us who spend a good part of rest-of-life using our skills, life experience, and passion to help make this Earth a better place.
CONTENTS Acknowledgments ix Introduction 1 SECTION ONE: PERSPECTIVES FOR REST-OF-LIFE 15 CHAPTER 1 Trends The Past and Future of Retirement 17 CHAPTER 2 How Long Will We Live? 35 CHAPTER 3 What Do We Really Want? 45 CHAPTER 4 What, Me Work? 60 CHAPTER 5 What Should I Do? 76 SECTION TWO: HEALTHY INTEREST 81 CHAPTER 6 Healthy Fear 83 CHAPTER 7 Take Care 97 CHAPTER 8 Just in Case 107 SECTION THREE: MONEY MATTERS 127 CHAPTER 9 How Much Is Enough? 129 CHAPTER 10 Don t Die Broke! 140 vii
viii CONTENTS CHAPTER 11 Which Investments Should I Use? 157 CHAPTER 12 Where Should I Invest My Money? 193 CHAPTER 13 Uncle Sam Wants to Help Sorta 223 CHAPTER 14 Social Security, or Insecurity? 238 CHAPTER 15 Getting the Most from My Pension Benefits 259 CHAPTER 16 Squeezing the Last Drop 275 CHAPTER 17 What, Me Work? Revisited 283 CHAPTER 18 Let s Spend Our Money! 295 CHAPTER 19 CHAPTER 20 Answering the Three Big Questions Examples, Tools, and Templates 315 Answering the Three Big Questions Observations and Strategies 355 SECTION FOUR: PUTTING IT ALL TOGETHER 367 CHAPTER 21 Ya Gotta Wanna 368 CHAPTER 22 The Twenty-First-Century Model for Our Rest-of-Life 381 Epilogue 385 Index 391 About the Author 401
ACKNOWLEDGMENTS Many people helped tremendously with this book. First, I d like to thank Melinda Grubbauer and David Hoak, who read the drafts of the entire book, spent countless hours discussing the topics with me, and served as my muses and supporters throughout the project. Marie Curran was tireless and patient with lots of logistical and administrative support. Linda Eckholm, Jim Isbell, and Ron Littler also read most of the book drafts and provided great comments and support. I have a great marketing and publicity team from Watson Wyatt to help get out the message Gretchen Broderson, Ed Emerman, David Popper, and Katherine Shain. Many people reviewed parts of the book, provided quality control on certain aspects, pointed me to key research, or spent time discussing these topics and providing ideas and inspiration. Here they are, in alphabetical order: Sue and Roger Bell, Gretchen Broderson, Kyle Brown, Joe D Anna, Cary Franklin, David Friend, Gary Gausman, Carl Hess, Karen Holt, David and Laleh Lourie, Gail McKee, Gail Meyers, Janemarie Mulvey, Alicia Munnell, Michael Orszag, Neil Ronco, Syl Schieber, Patti Smith, Ed Spangler, Martha Spano, John Steinbrunner, Marilyn Venegas, and Arlene Weissman. Adam Levine did a wonderful job preparing the asset/liability models in Chapter 10. Wayne Pages prepared the graphs in ix
x ACKNOWLEDGMENTS Chapter 11. Amy Zahler helped with the Social Security calculations in Chapter 14. I m grateful to Charlie Commander for donating his creative Retiree Savings Menu in Chapter 20, and You Bet Your Life quiz in Chapter 15. Chris Wisdom generated various actuarial factors that appear in Chapter 19. Erica Curtis and Renee John of Watson Wyatt s library tracked down many research articles for me. I d like to acknowledge the hundreds of Watson Wyatt associates who sent me e-mails for case studies on health and working during their later years, and sent me their good wishes and support. I d like to thank Eric Lofgren, Gene Wickes, and Larry DiFiore, who allowed me the time from my day job to write. Sandra Pope made a crucial suggestion to help me find my voice for this book. I ve had the benefit of hanging around great examples of successful agers friends and family who continue to be active in their rest-of-life. This includes my father who pole-vaulted and skied until 80, my mother who has been the loving matriarch of the family and also skied late in life, and my Aunt Mimi Vernon who continues to amaze our family with her volunteer work and words of wisdom. And last but not least, I d like to thank my editor at John Wiley & Sons, Debra Englander, for publishing the book and providing key guidance along the way. I can t imagine a more supportive and collaborative editor. She also assembled a great team Greg Friedman, assistant editor; Kim Craven, marketing; and Todd Tedesco, production.
LIVE LONG &PROSPER!
INTRODUCTION Hey, Steve How much is enough? How much money do I need to retire? I frequently get asked this question, once word gets out at parties, family gatherings, and social occasions that I am a consulting actuary 1 who works with retirement plans. Finally, this actuary is the life of the party! How much is enough to retire comfortably and not run out of money in one s later years? During my thirties, my answer was: I dunno I ve been wondering about that myself. I jeopardized my status as the life of the party. In my forties, I started answering in actuarial mumbo jumbo, talking about life expectancies, Social Security, anticipated retirement ages, and returns on various classes of investments. I 1 Actuaries are professionals who measure the risks of important but unpredictable life events risks such as death, serious illness, accidents, and outliving your money during retirement (living too long is considered a risk!). We design financial programs to mitigate these risks, such as life insurance, medical insurance, pension plans, and 401(k) plans. As part of our training, we study the mathematical chances of these life events happening, along with the types of investments and financial products and services that will protect individuals from the adverse consequences of these events. We ve been called the architects of financial security. 1