Friday, December 29, 2023


This post was written in early December but scheduled for later due to Secret Reasons!


I recently finished reading "How to Make Your Money Last" by Jane Bryant Quinn. I don't closely follow Jane, but have a very dear spot in my heart for her. Shortly after I got my first "real" job and was trying to get a handle on my finances, I read her book "Smart and Simple Financial Strategies for Busy People". It was an excellent book: it formed the foundation of my approach towards personal finance, and I've found its lessons consistently valuable over the last 20 or so year. I followed that up with "Making the Most of Your Money Now", a more comprehensive book that gave me my clearest understanding to date on topics like how bonds work and how asset classes are correlated. I've read a lot more finance books over the years, but honestly I don't think any of them have materially improved on the advice Jane gave.

In the last couple of years, I've started chatting with my parents as they approach retirement. They've lived pretty frugal lives and in recent years have diligently saved a lot towards their own retirement. Like many people in their position, who have lots of experience balancing checkbooks but not with trading securities, they've had a lot of uncertainty about their situation: Do they have enough to retire? How much can they expect to live on? How exactly will they go about drawing down their retirement accounts once they're in retirement?

A lot of this area overlaps with topics I'm cheerfully fluent on: I'll happily chat for hours about asset allocations, time horizons and Monte Carlo simulations. But there's a whole lot that I just don't know anything about, since I'm personally decades from retirement and haven't bothered researching it for myself. What exactly is an annuity? When would you want one, and how does it work? I was a bit startled to realize how little I knew about Social Security; I was aware that you got a higher amount the longer you waited, but only in recent months (after researching on behalf of my folks) did I learn how Social Security works with a married couple. (To summarize: if both are entitled to SS payments, then while they're both alive they'll each receive a check based on their own lifetime earnings; when one spouse dies, the other spouse can either continue collecting their personal check, or switch to their spouse's if it would be higher.)

So anyways, I was delighted to find that Jane Bryant Quinn had written a book that focuses on this topic. I'm planning to get it for my parents, as I think it will be a good resource; most of it isn't applicable to me just yet, but I still read through it to make sure that it made sense, and to learn some stuff as well!

This book feels a lot like the earlier ones, which I love. Jane is fact-based and also opinionated. A lot of financial "advice" you see online just regurgitates a lot of information and doesn't provide guidance on how to apply it; Jane will clearly say when one strategy is a good approach for most people, or when a specific type of product is terrible and should be avoided. She gives just enough background to help explain what you need to know, without getting lost in the weeds or going off on tangents. The overall structure is great, too: I think the best way to read this book is probably cover-to-cover, skipping over sections that don't apply to your situation (like pension funds for most of us). That's a great way to cover your "unknown unknowns": things you didn't know and wouldn't have thought to ask.

One major challenge of retirement planning is that everyone's situations are so different, in ways that can drastically impact the optimal strategy. How much you have saved, what support you're entitled to, whether you have dependents, and so on. And some of the most important factors are unknowable: how long you'll live, how bad inflation will be, what the stock markets will do. She cuts through these things in a great and clear way, generally advocating for planning for the worst-case-scenario; if your approach would work for that, then you can face the future with excellent confidence, and most likely have a prosperous road ahead of you.

There's a ton of great information in here. Most of the stocks-and-bonds stuff is old hat to me by now, but I still appreciated it, especially the focus on retirement income: after all, that's what most of us are socking away money in our 401k and IRAs for. She's a bit more bullish on stocks than I've been; a few years ago I shifted my personal portfolio from 80/20 to 70/30, with an eye to continuing to shift further towards bonds (as classic advice from Bogle, Malkiel, Meyer and others generally have it). As Jane notes, though, it can actually be safer to be more tilted towards stocks, as they are your main hedge against inflation. The key there is how big of a cash cushion you can maintain: if you can keep, say, 2 years of living expenses in cash, then your invested portfolio can be more stock-heavy; if you have a smaller nest egg, though, then you should probably have more bond exposure so you aren't forced to sell stocks at a loss, and this in turn will probably push down your safe withdrawal rate. That's something I need to remind myself of: the actual size of a portfolio matters too, not just its asset allocation.

The most helpful chapter for me was the one on annuities. I know just enough about annuities to run the other way, as they have a terrible reputation in the online communities I travel in. Jane makes a strong argument for one very specific type of annuity: an immediate annuity. With this product, you make a one-time purchase, and in exchange receive income for life; for example, paying $500,000 might translate into monthly checks of $1,500 for the rest of your life, depending on the age at which you purchase the annuity and what options you pick. This is basically a hedge against living too long: you "lose" if you die earlier than planned (but, as Jane kindly-yet-snidely observes, what do you care? You're dead!), and you "win" if you outlive expectations. For a lot of people, this can make sense: you'll have guaranteed income from Social Security and your annuity to pay all of your expected recurring expenses (groceries, utilities, insurance, etc.) and can dip into your invested savings for specific needs (home repairs, vacations, cars, gifts, etc.).

Even these "good" annuities do have limitations, though: unlike Social Security, they are not indexed to inflation, so they won't do as well in a period of rising rates (although current rates will impact the paid amount). And super-rich people probably won't need them anyways, if they have enough socked away that they don't have to worry about running out of money. Anyways, I'm just glad to have a clearer idea of what the heck these things are, while I personally consider to shy well away from them.

I did just completely skip over some of the stuff that doesn't apply to me or my parents (like defined-benefit pensions), which seems to work great; the book is nicely compartmentalized, so no crucial information is hidden in unrelated chapters.

I do think this is an excellent book for anyone in, say, their mid-50s or later. I don't regret reading it, but I'm also aware that a great deal will likely change between now and when I retire. This is actually the second edition, and apparently a lot was rewritten after the 2018 Trump tax law changes. Who knows how many more changes will arrive in the coming decades? As with her earlier books, though, the overall ideas seem sound and timeless, even if the specific advice gets dated. (As just one example, she mentions Vanguard as one reputable provider of immediate annuities, but they exited the insurance market shortly after this book was published. Sigh...) For people who are younger, a more general finance book would probably be a better match, as those tend to still address retirement but more from the perspective of accumulators.

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