Book Summary – The Big Retirement Risk: Running Out of Money – Written by Erin Botsford

One of Erin’s team members sent me this book yesterday so I read it. I was a bit skeptical but Erin’s real world experience going from a comfortable living to the poor house in one day hits home. How many times have you heard people say about their retirement – “I don’t even open my statements anymore because I am scared to look at them.” This book tackles that fear and more.

Why is this important to me?

I don’t want to waste your time. If you are investing your time reviewing this summary then it has to be worth it for you. According to Dr. Maslow, people have a hierarchy of needs. The most basic need is that of security. Money may not buy happiness but it does buy choices and with choices comes freedom. If you were scheduled to retire in 2008 then you saw your 401K portfolio lose have of its value or more. Think about that impact for a moment. You spend 40 years working and saving your money and it takes all of three weeks to lose half of that savings.

Quality of Life needs to be part of any financial plan. There are several 50 to 60 year old people today who wanted to retire to a vacation home or travel that now are finding themselves having to work until they die. Fortune 500 executives are now greeters at Wal-Mart because a handful of people leveraged our financial system to the brink for a commission.

The Big Retirement Risk is packed with great information. For the sake of time, I will profile three main points.

1. Four Myths of Wall Street – 1.) Over the long run, the market always goes up. The biggest trick the devil ever played is convincing the world he does not exist. This is the same as the market always goes up. There are 20 to 30 year trends from 1900-2011 that the market was flat. Thus if that was your investment time, you lose. 2.) Diversification and Asset Allocation are critical to retirement success – Warren Buffet calls it De-worsification. Being invested in the stock market in different sectors is not diversification. 3) Major Financial Services firms give you options – The opposite is true because the level of expertise required for true custom retirement plans does not scale well. The risk is too great. 4.) Net worth determines your Lifestyle in Retirement – This is not true. The only thing that matters is positive net cash flow. You can have a car worth a million dollars and not have enough monthly cash to pay for the gas. Assets have to spin off monthly cash flow to be effective.

2. Lifestyle Investing – Erin has an excellent method of investing dealing with Needs, Wants, Likes and Wishes. The concept is so simple that it is brilliant. You lock in all your needs with a guaranteed investment return and then fund the other stages with different types of investments. The only investments that has guaranteed on it are U.S. Government Issues and Insurance products.

The retirement promises from big financial services firms and 401K plans are broken. “An estimated 47% of Americans born between 1948 and 1954 may not be able to afford basic expenses and uninsured health care costs through retirement.” This brings us to our third point.

3. Guaranteed Retirement Income – Erin talks about the power of annuities after 1999. There are some strong arguments for using these types of products for your guaranteed retirement income. To divert a bit, I have employed the infinite banking concept for the guaranteed retirement income. This is by far the strongest way to build a solid nest egg and have full control of your money. Treating investing as a business is the true way to success. Both method use insurance products that provide a guaranteed investment return. Financial gurus who are in favor of mutual funds will pooh pooh this idea because the guaranteed returns may be lower than what the market returns in CERTAIN years. I can tell you from personal experience that the dot com crash and the 2008 Financial Meltdown did not affect my banking system yet some of my stock market investments went in the toilet. My guaranteed portion went unharmed.

The Big Retirement Risk shows you that survival of the fittest and nature dictate what happens in life. You need to prepare accordingly. Erin profiles in the last section 22 low probability / high impact events that you need to be protected from. That part alone makes the book worth reading.

I hope you have found this short summary useful. The key to any new idea is to work it into your daily routine until it becomes habit. Habits form in as little as 21 days. One thing you can take away from this book is guaranteed returns. You need to research insurance products and find out if they will work for you. Also, understand the savings/investing strategy for Needs, Wants, Likes and Wishes is very important if you want a secure future.