I mentioned a couple of days ago that at a conference Mike Piper offered me a copy of his book Can I Retire?. In general, I hate books. I read websites most of the day and when I’m done the last thing I want to do is more reading. However, a couple of things intrigued me about the book – I had met the author and it is 100 pages. The later is perfect for the Lazy Man audience.
I wasn’t necessarily going to review the book, but let me just say the following: I’m sending this to my mother in a few days with a note that simply says, “Read This.” I can’t think of a higher compliment I can give.
The book is geared towards the person approaching retirement age. There’s very little written for someone who is 35 like me, but as Piper mentions when you are far away from retirement there are just too much volatility to consider. However, I wouldn’t have it any other way. The book should be geared to large audience.
Can I Retire is divided into 3 sections and 12 chapters. The sections answer the questions, “How much money will you need to retire?”, “How should I manage my investment portfolio?”, and “How can I best manage taxes in retirement?
The first section was the most interesting for me. Figuring how much money you need to retire is often a very difficult thing. Piper explains why this is with a tremendous example of how even a diversified portfolio could, using past historical returns, have as much as $1,100,000 in it… or as little as $160,000 in it.
One thing that the book explained was where the 4% rule of thumb came from. For those who don’t know about that rule of thumb, check out The 4% Retirement Withdrawal Rule. I had always presumed it came from typical market returns of 7% with inflation eating up 3% of that, leaving 4% as the magic number that “treads water” so to speak. Turns out that there are two entirely different reasons. Want to know them? You’ll have to read the book. I can’t give away the milk for free as they say. If you don’t want to read the book, just go with my explanation – it’s pretty easy to understand and I’m stubbornly sticking to it.
The next section about portfolio management was solid. I agreed with everything except the role that foreign investments should play in a portfolio. He made a case that due to currency risk, there is a chance that your investment in a particular country might not be worth as much when converted into US dollars. That extra volatility is uncertainty that should be minimized. My belief on this is that one should get a very diversified basket of international stocks so your overall currency risk is minimized. If your portfolio is based largely on the US and the US dollar tanks, you will likely experience some difficulty in your planning as well. I believe that more diversification is better. If the US tanks, perhaps the gains in foreign investments and currency will offset that.
The third section covered tax strategy in retirement. I really don’t find retirement tax strategies that interesting (as opposed to the rest of personal finance, which is awesome – no sarcasm). I will say that Piper painted a great picture of how if one can manage expenses in retirement it may be possible to get away with paying very little tax. I hadn’t thought about how in retirement, costs of living might way down (especially if there is no mortgage or rent payment). This means that you might not need to tap those retirement accounts much to cover expenses and hence stay in a low tax bracket.
These are the kinds of things that are interesting to think about with 30 years to spare until I reach retirement age. You’ll find a number of similar cases in the book and for a Kindle price of less than $5, it is probably one of the better investments you can make. Piper is quick to point out that it isn’t meant as a comprehensive resource, but that’s beauty of the book. It gets you started down the path of retirement and it only takes a couple of hours to read.
Update: I forgot to mention that Mike Piper has a great investing blog that has been featured in Money Magazine and many other places. It’s a must-read.