Customer Reviews

Are You a Stock or a Bond?: Create Your Own Pension Plan for a Secure Financial Future

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Dr Milevsky does an excellent job discussing the dual uncertainties of retirement planning: uncertainty of longevity, and uncertainty of portfolio duration. Both deal with trying to determine how long you or your money may last, while recognizing that both time periods need to overlap - in fact one might argue that the portfolio time period needs to be nanoseconds (ideally with perfect knowledge) longer than your longevity. The human capital approach is excellent since it relates the long term economic value of a person's labor, as a total dollar value; to the total dollar value that person needs to sustain their living standard throughout retirement.

There is controversy in the profession concerning the allocation of assets considering the nature of a person's source and nature of their income along with those assets. However, putting concepts out there for discussion is how incremental improvements occur. Another controversial approach has been forwarded in Spend 'Til the End: The Revolutionary Guide to Raising Your Living Standard--Today and When You Retire by Laurence J. Kotlikoff and Scott Burns. Their approach is to smooth your spending over your entire lifetime. Dr Milevsky's approach is to determine how to sustain it. The theme of both works is how to evaluate your standard of living and then how to sustain it in the long run.

Dr Milevsky's formula and excel use if very useful for most people. In practice though, most people would have a hard time determining an expected return and standard deviation for their portfolio especially considering this is a value they expect for the rest of their life. Median remaining lifespan (MRL) also means there's a 50/50 chance of living beyond the period evaluated. A person would reduce the chance of outliving their assets if they used a lifespan factor than had a lesser chance of being outlived. He acknowledges the fact that the older you get, the older you are likely to get in Chapter 7. However, he does not provide the mathematical means in his discussion (even as an appendix) to adjust for this factor should one want to plan more conservatively. One may argue that you would adjust the MRL as you age. However, that would mean that a person is overspending early and would need to retrench their spending as they age, because they would need to stretch the spending farther than what the plan called for originally - once retired there is no replenishment of assets that are already spent.

His book The Calculus of Retirement Income: Financial Models for Pension Annuities and Life Insurance goes into greater detail about the calculus that supports this book.

A final note: the use of variable annuities with their riders is, as yet, untested as to whether the companies selling them can withstand the test of time for both markets and demographic forces. Demographic changes are an important consideration since variable annuity riders are structured where people need to pay in more for the benefits than the benefits that are paid out (the theme sounds much like the Social Security or the pension phenomena he describes in his introduction).

Putting the nit noy of these aside, this is an excellent primer for most people about the issues they face for retirement. Using the concepts here will do more good than harm for most do it yourselfers.

Wealth Odyssey: The Essential Road Map For Your Financial Journey Where Is It You Are Really Trying To Go With Money?

The horrible bear market that began in Oct. '07 and continues into early '09 has shaken traditional concepts of asset allocation and diversification to the core. There were no shelters that worked other than treasuries. Only 1 equity mutual fund MADE money in '08 and that one didn't even earn 1%. The brilliant Mr. Milevsky (Ph.D at age 27) presents
numerous ideas that can help you plan to make sure that you do not outlive your money even if faced with another brutal downturn once the workplace paychecks have ceased. "A large sum of money in an investment plan-however you define large-doesn't guarantee you a secure retirement. The strategy you employ and the products you purchase with your nest egg will be more important than the size of that nest egg."-Taken from the Introduction pages and probably the compelling reason why you should give this book a read, and highlight key points for your specific situation, and re-read, re-refer and get your retirement income plan RIGHT!
There are several boring sections in the book and the heavy duty math portions will put most readers to sleep but this book has many great sections such as how the sequence of returns will dramatically effect you, how the elderly have a totally different inflation rate than the standard monthly and yearly CPI, and how the twin problems of that higher inflation rate and increasing longevity can wipe you out if you have not properly planned for them as well as a bad down market. New products have emerged to accommodate the wave of boomers. You must know about them to give your portfolio a fighting chance to make sure that your golden years don't turn to rust."Guarantees make people feel more comfortable", part of chapter 10 is worth the price of the book alone. The chapters just get better and more meaningful as you read along and culminate in the outstanding "Conclusion: Plan for Managing Your Retirement Risks." I have over 20 years experience in the Retirement Planning field, advising only Doctors and Registered Nurses and Physical/Occupational Therapists. This IS the best book currently available on how to establish a "secure financial future."

Moshe's background is mathematical, so some of the book tends to academic discussion of Monte Carlo simulations and long formulas that bored me. His most interesting insight is the treatment of your human potential and earning power as a financial asset. He describes how to extract the greatest potential out of your lifetime earnings, and how to allocate the risk appropriately.

The one thing that gives me pause -- the conclusions his mathematical expertise produce tend to look very bad. For instance, he states in his book that he is 150% exposed to equities. That means he has borrowed 50% above his own money and put it into the stock market. Since the publication date was 2008, you can imagine that his nest egg is totally wiped out, if it wasn't carefully hedged.

As smart as Moshe is, I wonder if he'll write a different book as a result of the "Crash of 2008".

What a revolutionary way to think! I have never thought of myself as a stock or a bond. But the author is so right about it. People make money differently. Some are salespeople, and their income is more like stocks because it varies. Others have jobs that have more predictable income streams so they are like bonds. The author argues that individuals who are more like stocks should invest in bond-like investments and individuals who are like bonds should invested in stock-like investments. This book forces readers to think in a new way.

- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market