Home' Trinidad and Tobago Guardian : July 20th 2014 Contents JULY 20 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
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TWO things make Investing for
a Lifetime (Wiley & Sons)
worth your attention. First is
the simple, straightforward
approach that the author,
Richard C Marston, a finance
professor at the University of Pennsylvania,
uses to explain how you should invest to ensure
that your money lasts as long as you do.
He reduces everything to the three steps
that you might have suspected: Save a lot,
invest your money wisely and don t withdraw
the funds too soon.
As Prof Marston concedes, none of this is
easy. Intriguingly, though, he argues that the
piece of the puzzle that most people regard
as the hardest may actually be the simplest.
"I believe investing is relatively easy," he writes.
"It is much harder to save than invest." And
he believes that you need to save a lot.
That brings us to the second thing to like
about the book. Most of it is devoted to helping
you determine exactly how much money you
need to put away. His answer: a great deal.
Although Fidelity Investments garnered a
lot of attention two years ago when it declared
that you would need eight times your current
salary to "meet basic income needs in retire-
ment," Marston disagrees.
"Despite the fact that it is very difficult to
save eight times income, the goal the company
proposed seemed too low to me," he says.
If you thought eight times current income
was daunting, Marston s default position will
stun you. He says it can easily come to 15
times what you are earning now.
Why? "I assume that when investors retire
they would like to spend as much as when
they were working," he writes.
But that spending figure does not equal 100
per cent of current income, he says. For one
thing, you won t have to keep saving your
money for retirement once you ve retired. In
the hypothetical he employs throughout, if
you are now making US$100,000 annually,
and saving US$15,000 a year for retirement,
you have to generate "just" US$85,000 of
income in retirement.
THAT number is further reduced by your
social security benefits. And unlike most other
retirement guides, Mr Marston s book factors
in a fairly precise figure of what you can expect
"A worker earning US$100,000 today and
equivalent amounts, adjusted for inflation in
earlier years, would qualify for almost the
maximum amount paid by Social Security,"
he writes. "If this individual is retiring at the
full retirement age of 66, the Social Security
payment will be almost $26,000 a year."
That lowers the needed amount of money
to about $59,000 a year. So where will it come
from? Unless you have a pension or some
other stream of income once you stop work,
the answer is your retirement funds.
Throughout the book, Mr Marston uses the
rule of thumb that you can withdraw 4.0 per
cent of savings a year---adjusted upward for
inflation---to fund your retirement without
running a substantial risk of outliving your
money. So the person making US$100,000
will need a retirement portfolio of $1.475
million to be able to withdraw US$59,000 a
year. That works out to be a savings goal of
14.8 times current income, not eight.
So is the situation as dire as Prof Marston
makes it seem? It depends.
Obviously, it s possible to live on less than
your current income, minus retirement savings,
once you stop working. You won t have work-
related expenses---commuting, lunches out
and the like. That, coupled with the fact that
you could move to a less expensive part of the
country, is why some experts estimate that
you may be able to get by comfortably on 70
per cent of your current income. (The coun-
terargument, which Marston makes, is that
you will have more time to pursue leisure
activities like travel---activities that cost money.)
Then there is the question of just how much
you will earn on your investments once you ve
Mr Marston s ideas about how to invest are,
as he promises, simple to carry out. A model
portfolio is made up of equal parts well-diver-
sified stock holdings and high-grade bonds.
Based on historical returns, he says, such
a portfolio would earn about 3.7 per cent annu-
ally, after factoring out inflation, so you
wouldn t need to pull out much principal to
reach the 4.0 per cent figure.
The presentation here is strictly matter-of-
fact. Marston lets the numbers speak for them-
selves, and they tell us at least two things:
First, we will probably need more money than
we think to retire the way we want. (True,
planning to have the same level of spending
in retirement as we do now is ambitious, but
who wants conservative goals?)
Second, it makes sense to push back your
retirement date if you can. Of course, you may
not have a choice. For many people, ill health,
forced retirement or an inability to find work
when they re older are facts of life. Still, a sur-
prising number of people decide on their own
to retire relatively early.
In an American context, more than 40 per
cent choose to apply for Social Security benefits
at age 62, the earliest they can, Mr Marston
writes, citing Social Security Administration
figures, even though the annual payments for
such early retirees are only 70 per cent of what
they could have received had they waited until
So cashing in early is not the best course,
if you can afford to wait. When you are invest-
ing for a lifetime, you want to maximise every-
thing you can.
In T&T, the National Insurance Retirement
Benefit is designed to supplement the income
of individuals after retirement. Every employee
who has paid National Insurance contributions
is entitled to a Retirement Benefit qualifies
for such a benefit at any time between the
ages of 60 and 65 if you are retired or at age
65 whether you retire or not.
The insured person who is between 60 to
under 65 years will receive the benefit if he
ceases to be in insurable employment and will
continue to receive such pension even if he
returns to insurable employment before he
attains age 65.
In order to receive a National Insurance
pension, the beneficiary must have a minimum
of 750 contributions to his or her credit. The
contributions may comprise paid contributions
inclusive of voluntary contributions, age credits
and or benefit credits. New York Times
How to invest
for a lifetime
RICHARD C MARSTON
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