Retirement Income Generators

I’ve been reading a bunch of books on income in retirement. See the last two entries for more in depth discussions of annuities.

I enjoyed and would recommend “Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck” by Steve Vernon, FSA. I don’t actually know what the initials FSA stand for, but he mentions in the book that his background is as an actuary, so that gives me a guess as to the “A”.

The only thing I didn’t really like was that he came up with some acronyms that I promptly forgot what they meant. The motto of this book was “RIGs for LIFE.” Looking back inside the book I see that “RIG” means “retirement income generator”. He just means that he has four tools to use, and he’s trying to turn it into a graphic about trucks. What he means is that you need to cobble together a mosaic of cash streams from either living on income (not touching principal) OR a systematic withdrawal method (touching principal, but aiming to have the last check to the undertaker), OR buy an immediate annuity.

As an actuary, he likes immediate annuities, but he grudgingly admits that GLWB annuities are what people seem to want. His book does a quick and superficial job of clarifying the trade-offs. If you want to buy a GLWB then read the previous book about hating variable annuities for more detail AND the previous book about how not to get ripped off buying annuities for more detail about terminology. (I have an Annuities for Dummies book that would service there, too.)

He spoke to the layperson in this book and I appreciated the level he was using: I think it strikes a good balance and I will use some of his terms. He also referenced some other authors I’ve either read or have queued up to read, so it was good to see his school of thought and I could see where the other books I’ve read fit into it.

Right after this I started William Bengen’s “Conserving Client Portfolios During Retirement”. I’m not all the way through it yet, but it’s a good counterpoint to the mass-market focus of the Vernon book, above. This one came out of a series of papers in the Journal of Financial Planning and it’s pretty heavy on the excel graphs and statistical scatterplots. It gets to the nitty gritty of how you do systematic withdrawals, peaking under the hood at the engine of the “4% solution” that gets widespread rule of thumb discussion. Bengen has the same credential I have, CFP(R) and the pure research and investigation he’s doing on his computers at night makes me proud of the credential, while, at the same time, reminding me that I’m presenting at a conference in November myself and I need to up my game if I’m going to hang out with people this rigorous.

I need to add more to this about the protocols for determining how much to withdraw: it’s the chapter I’m just starting now in the Bengen book about Safe Withdrawal Rates (SWR) and it’s so important that I put it down until I have some time to read it without interruption. Don’t ask me when *that* will be, because I’m at the end of an abbreviated vacation week and I’m starved for some down time after just having the briefest taste of what it feels like. I had Wednesday and Friday and Saturday to myself for most the day and I read three books, a bunch of financial planning magazines, and went to the beach for an hour once. Uggh. So much for vacation.