[Book Cover of Pensionize Your Nest Egg]

Traditional defined-benefit pensions in which an employer promises and guarantees an employee’s retirement income are becoming scarcer these days. As very few Canadians outside of the public sector being covered by DB plans, the vast majority of us now bear the risk of saving enough for retirement and investing those savings wisely. Unfortunately, the challenge doesn’t end there. Canadians in, or nearing retirement then face risks that their hard-earned nest egg will not last their lifetime.

In Pensionize Your Nest Egg, authors Moshe Milvesky and Alexandra Macqueen demonstrate that retirees face three main risks: (1) Longevity risk — the length of time in retirement, (2) Sequence of Returns Risk — the risk of a negative sequence of returns in the years immediately preceding and following retirement and (3) Inflation Risk — the relentless loss of purchasing power of nominal dollars. But how does one protect against these risks? The authors have coined (and trademarked) a term for the solution: pensionize, which simply refers to converting some fraction of a nest egg into a guaranteed income that lasts a lifetime.

The book is divided into three parts. The first deals with the three aforementioned risks that retirees face. The meat of the book is contained in the second part. It shows why retirees should allocate their retirement accounts across three product silos: annuities, traditional stocks and bonds and guaranteed lifetime withdrawal benefit (GLWB) products (such as Manulife’s IncomePlus). This section also important concepts that retirees need to ponder such as their Retirement Sustainability Quotient and Financial Legacy Value and the trade-offs between them. The last part of the book provides a seven step roadmap for pensionizing a nest egg.

The book is extremely well-written and despite some warnings in the Preface, easy to understand. The discussions are rigorous as you would expect of a book that was co-authored by an academic. Retired Canadians and soon-to-be retirees owe it to themselves to read this book. Pensionize Your Nest Egg is published by John Wiley for a cover price of $26.95. In the spirit of full disclosure, I should mention that a review copy was furnished by Ms. Macqueen and that I know Ms. Macqueen through the Canadian Money Forum where she posts as MoneyGal. You can find  more information on the QWeMA Group website.

Here are some other reactions to the book: Larry MacDonald enjoyed the book and thought it was more accessible and focused than materials presented in other books. Jon Chevreau said the book offers a cure for pension envy in his column in the Financial Post.

This article has 16 comments

  1. I also enjoyed reading the book and did a review (http://blog.canadianbusiness.com/book-review-pensionize-your-nest-egg/). A lot of the material comes from Milevsky’s previous books but it’s an easier read. And there are some good, clear explanations of how annuities and GLWBs work in Chapters 6 & 8.

  2. I’ll probably be reviewing the book next week – I haven’t had time to start reading it yet.

    I’m looking forward to reading it though!

  3. @Larry: I forgot to add the section that linked to other reviews. It’s rectified now. I thought the book was very accessible as well. I had no trouble following it. I haven’t read Milevsky’s earlier works, so a lot of it was very new to me.

    @Money Smarts: Looking forward to your review. And yes, I hear you loud and clear on not having enough time to read books.

  4. I’ve read two of Milevsky’s previous books, “Are you a Stock or a Bond?”, which I highly recommend, and “Your Money Milestone’s”, which I also recommend, even if I don’t agree with all of his recommendations in that one (academically sound though they may be). If this book contains similar material to his earlier books, then I will probably recommend it to my nearing-retirement parents.

  5. Do the authors fully disclose how fee-intensive annuities and GLWBs can be, in contradistinction to less expensive alternatives like stocks, bonds, ETFs, MICs etc?

  6. Yes, Dale, there is a chart (I think it is on page 98) which fully discloses the “ongoing costs to pensionize” – in addition to discussion in the book about fees associated with different products and strategies. (However, I should not that cost – and other implementation questions – are *not* the focus of the book.)

  7. Hoping to read the book sometime myself, will likely have to buy my own copy, unfortunately!

    1) Are there not two other critical retirement risks that any practical plan must consider – taxes (registered vs unregistered plans, dividends, capital gains, income) and health – both of which can have a large financial impact?

    2) If the book ignores the overhead costs of the solutions, then at best it sets out an ideal approach, which may in practical terms not be close to the best overall trade-off plan. e.g. if reverse mortgages didn’t have such high fees, they might be a very useful product or, if the MERs on mutual funds in Canada were much lower, they would be an attractive investment vehicle.

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  9. @AKA: I’ve added both the books to my “to read” list. I’ve heard about them and been meaning to read them. I think this book offers those nearing retirement a lot to think about.

    @Dale: Yes, costs are touched upon briefly in the book. Funny you should mention MICs are “less expensive”. From what I’ve seen MICs are not what I’d call less expensive products.

    @CanadianInvestor: I would have liked to a discussion on fees as well. IMO, GLWBs are so expensive that it is questionable if retirees should even bother with them. I would have liked to see some discussion on whether GLWBs can be skipped in view of the lack of attractive products.

    http://www.canadianmoneyforum.com/showpost.php?p=33050&postcount=16

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  11. Just finished reading it. Excellent! I feel much better about my options at retirement. I also feel I can retire with less than I would have thought. A required read for anyone, close to retirement or not.

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  15. Sounds good.. I have just bought the book…

  16. I think that when you look at how everything plays
    out in real plans, that the issue of fees,
    commissions, other extra costs that are not
    always transparent. – These are the real problems
    with financing a retirement.

    The large amount of the income that goes to
    ‘other people’, silent partners like the Federal and
    Provincial Government, and the large sector
    of people working in the Financial Industry
    who must make money off your money.

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