The Rule of 30: A Better Way to Save for Retirement
224
The Rule of 30: A Better Way to Save for Retirement
224Paperback
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Overview
In The Rule of 30, personal finance expert Frederick Vettese provides a surprising — and hopeful — answer to balancing the costs of living with the costs of saving for retirement. Through conversations between a young couple and their neighbour, a retired actuary, the couple and the reader discover:
- How the future investment climate will differ from the recent past and why it requires a different approach to saving
- The problem with saving a constant percentage of pay
- The Rule of 30 and why it is a more rational and personalized way to save
- Whether investing in real estate is a viable alternative to investing in stocks
- The impact renting versus owning your home has on your retirement savings
The Rule of 30 changes the mindset from saving the same flat percentage of pay to saving when it is most convenient to your situation. In most cases, it means less saving early on while mortgage payments are high and children are costly, and more saving later when our earnings are at their highest and expenses at their lowest.
Saving for retirement is a high priority, but it is not the only priority in life. It is time to dispense with old and often unrealistic myths like “just save 10% of your take-home pay.” The truth is we should save differently throughout our pre-retirement years — and The Rule of 30 is a road map for doing so.
Product Details
| ISBN-13: | 9781770416178 |
|---|---|
| Publisher: | ECW Press |
| Publication date: | 10/19/2021 |
| Pages: | 224 |
| Sales rank: | 1,111,264 |
| Product dimensions: | 5.90(w) x 8.60(h) x 0.60(d) |
About the Author
Read an Excerpt
“What exactly is a bear market?” asked Megan.
“It’s defined as a drop of at least 20 percent in a benchmark index like the S&P/TSX.”
“Sounds nasty. Do these bear markets occur frequently?”
“There have been at least eight of them since 1950,” Jim confirmed. “That is why there are so many years when overall stock returns are negative.”
“Is that bear market the reason that 1946-1975 turned out to be the worst-ever period?” Brett asked.
“It’s one reason. Another is that inflation starting rising in the mid-1960s and was still climbing by 1975. It caused interest rates to rise, which created losses in the bond portion of one’s portfolio.”
“Just how bad was 1946-1975?”
Jim consulted his chart for a few seconds, “The average real return in that period was 2.6 percent a year, compounded.”
“So even in the worst-ever 30-year period, our investments would still be beating inflation by 2.6 percent a year,” said Megan thoughtfully. “That doesn’t sound so bad.”
“For sure,” Jim agreed. “This chart here shows the average return over all 30-year periods, both in nominal and in real terms.”
Jim gave them a page with a chart labelled Figure 1.
[Figure 1]
Brett frowned, “Doesn’t the return depend on how you invest?”
“Absolutely,” says Jim. “I should have mentioned earlier that I’m assuming a 60-40 asset mix.
Jim noticed Brett and Megan exchanging glances so he added, “A 60-40 asset mix means 60 percent of the assets are invested in stocks (or at least in some pooled or mutual fund that is composed of stocks) while the other 40 percent is invested in bonds, in this case longer-term government of Canada bonds.”
While his audience digested that information, Jim continued, “I’m not saying that 60-40 is the ideal asset mix for you but it is pretty standard for pension funds and retirement saving in general. Later, we’ll try to improve on it but for now, let’s assume that your savings are invested in a 60-40 mix. Now I need to ask you two, how much are you currently earning?”
Brett hesitated a moment, “I have no problem in giving you that information, Jim, since you’re like our financial priest. But why is it important to know our earnings? Don’t people need to save the same percentage of pay whether they’re earning $25,000 or $250,000?”
“Actually, no,” Jim replied. “It is important to include your pensions from OAS and CPP to really understand your retirement-readiness. When you do that, you find that the higher your earnings, the more you might have to save in percentage terms since OAS and CPP become less and less important to your overall financial wellbeing.”
Table of Contents
List of Tables and Figures ix
List of Acronyms xi
Foreword xiii
Part I Lessons from the Past 1
Chapter 1 How Much Should You Save? 3
Chapter 2 It Was the Worst of Times 8
Chapter 3 Converting a Lump Sum into Annual Income 17
Chapter 4 A Realistic Retirement Income Target 23
Chapter 5 Should You Pay Off the Mortgage Early? 36
Chapter 6 Introducing the Rule of 30 44
Chapter 7 Stress-Testing the Rule of 30 57
Chapter 8 The Vulnerable Years 67
Chapter 9 Using Asset Mix to Improve Returns 76
Chapter 10 Refinements to Your Investing Approach 86
Chapter 11 Invest in Real Estate Instead of Stocks? 93
Chapter 12 Is It Better to Rent or to Own? 105
Chapter 13 One More Enhancement 111
Chapter 14 A Final Look at the Past 118
Part II Why The Future Will Be Different 123
Chapter 15 Pondering the Unknowable 125
Chapter 16 Bonds Will Underperform 136
Chapter 17 Interest Rates Will Remain "Low for Long" 141
Chapter 18 The Unpredictable Stock Market 149
Chapter 19 Putting It All Together 157
Part III Denouement 169
Chapter 20 Rounding Out the Picture 171
Chapter 21 Graduation Day 180
Chapter 22 The Big Picture 186
Appendix: Pensions from Government Sources 191
Acknowledgements 201
Index 202