By Jack Guttentag
The Mortgage Professor.
I don’t review many books, but I felt impelled to report on personal finance expert Jane Bryant Quinn’s latest, “How to Make Your Money Last,” because as I read it, I found myself saying “I wish I had known this back then,” and “Yes, I should have done it that way. I wonder what my mistake cost me?”
The book covers every phase of retirement finance. While directed primarily at those who just retired, many of its suggestions apply to those who haven’t yet retired but need to start thinking about what will happen when they do. And some of the materials in the book (such as those having to do with periodic rebalancing of investment portfolios) apply to those who are well into retirement.
The great strength of the book is the author’s mastery of the program details needed to guide readers through each section.
For example, she explains all the different kinds of life insurance, the circumstances in which they make sense for the consumer, and how to manage them. I found this section tedious because I have no life insurance and don’t need any. For someone who does need life insurance, however, this section could be an eye-popping money-saver.
The author’s point of view is always the consumer faced with a problem who must select from a menu of actions. She defines the problem, lays out the possible actions, and recommends the action that is most appropriate for consumers with different needs or in different circumstances. This does not make for easy reading, and not many will read it cover to cover. The book lends itself to intermittent perusals, where the retiree focuses on the hot-button issue that engages her attention at that point, then picks it up again later when a new issue emerges.
Quinn is a finance expert, but not an “expert’s expert”, meaning she does not do original research that is published in academic journals. Rather, she finds and identifies for her readers experts who she trusts in each of the areas she covers, extracts the findings that she finds plausible, and exposits them to her readers in ways that they will understand. She does that better than anyone else I know. Yes, she does cite me as one of her informational sources, but I am only one of many. In looking for the best sources of information, she casts a very wide net.
Quinn has her personal preferences, some would call them biases, but they are all well-grounded in what is best for the retiree. Here are some of the major ones:
-Quinn likes single premium immediate pay annuities, because they are simple to understand, provide income over a lifetime, and if you buy them from the right sources (which she identifies), they are competitively priced. She also likes the deferred version on which the payments do not begin until some specified period in the future, on which payment amounts are larger. But she dislikes variable annuities with living benefit guarantees because they are excessively complicated and sales costs are prohibitively high.
-Quinn likes indexed mutual funds that track the performance of one of many stock price indices, because they do not involve discretion in the selection of securities, and therefore their expenses are very low. She dislikes managed funds for the same reason, their expenses are high, and very few of them out-perform the comparable index fund.
-Quinn likes fee-only certified financial planners because they are paid by the client rather than by the firms that issue the securities that the client might want to buy. This largely eliminates the potential conflict of interest between advisor and client. She recommends against fee-based sales people because of this conflict, and the lack of transparency in what the service is costing the client.
-Quinn likes home equity conversion mortgages, reverse mortgages made through the Federal Housing Administration, as a flexible retirement tool that can be useful in a large number of situations, but not in all. She is particularly impressed with home equity conversion mortgages, or HECM, credit lines because they can be integrated into schemes for systematically drawing on a pool of financial assets over a retiree’s remaining life.
By adding the credit line to the pool of assets, the draw amount can be enlarged or the probability that the assets will become depleted can be reduced. She does not consider the possibility of using part of the HECM credit line to purchase a deferred annuity that would kick in about the time the retiree’s assets do become depleted, but there is no literature as yet on that intriguing possibility.
Bottom line, anyone on the retirement track or in retirement should own this book.
ABOUT THE WRITER
Jack Guttentag is professor emeritus of finance at the Wharton School of the University of Pennsylvania.