Book Review

Book Review: The RESP Book

November 1, 2010

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[Book Cover of The RESP Book]

Compared to Registered Retirement Savings Plans (RRSPs) or even the relatively new Tax-Free Savings Accounts (TFSAs), Registered Education Savings Plans (RESPs) are a low priority for the mainstream financial institutions. The reason is quite simple: relatively speaking RESPs are small fry for the big financial institutions. While Canadians hold more than $600 billion in their RRSP accounts (2005 figures from The Wealth of Canadians report by Statistics Canada), the total value of RESP accounts is just $26 billion (2009 figures from the Canada Education Savings Program – Annual Statistical Review 2009). This mismatch is also reflected in books: a number of RRSP books are published every year but to my knowledge, there are no books covering RESPs.

Mike Holman who writes the Money Smarts Blog has filled this gap by penning a valuable resource on RESPs. The author starts off by explaining the unique and sometimes complicated rules governing RESPs. He then talks about the main reason RESPs are the best way to save for a child’s education for most people: the various grants available from the Federal Government and additional grants that Alberta and Quebec residents may be eligible for from their provincial governments. The final chapters deal with how to open a RESP account and how to invest the contributions and grants.

To be honest, most of the information available in the book can be found scattered between Government websites, newspaper articles, blog posts and forum discussions. But frazzled new parents will likely appreciate that the author has put everything together in one slim volume. And hopefully most readers will take the author’s advice and open a self-directed or bank RESP. Or at least opt for a Group RESP after carefully considering other options available to them.

The RESP Book: The Complete Guide to Registered Retirement Savings Plans for Canadians is available from Amazon.ca for $15.99. It should be noted here that a review copy was provided by the author. I should also mention that I’ve personally known Mike for many years and consider him a friend. You can find links to more reviews of The RESP Book on the Money Smarts Blog. The Globe and Mail recently published an excerpt from the book.

Book Review: 10 Things I Wish Someone Had Told Me About Retirement

October 5, 2010

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I have to confess that a new book called 10 Things I Wish Someone Had Told Me About Retirement by Rein Selles, Jim Yih and Patricia French did not leave me gasping. But I did find the book to be very impressive because it contains the kind of straight talk that you usually don’t hear — certainly not from financial institutions that loves to project retirement as a time to laze around the cottage or walk carefree on a beach or indulge in a favourite sport, something quite different from the reality. One of the authors, Jim Yih, quite apty, calls this retirement pornography.

Canadians who are starting to plan for their retirement or already planning it will find this book to be invaluable. Topics discussed include what to expect in retirement both from a lifestyle and financial point of view, debt reduction, investments, insurance, taxes, generating income in retirement and estate planning.

The book has an interesting structure. One author kicks off the discussion on a topic and the others chime in later in a roundtable format. As each author works in a different field — Rein Selles is a Retirement Planner, Jim Yih is a Financial Expert and Patricia French is a Family Finance Expert — they each bring an unique perspective to the subject under discussion.

Here’s a sampling of some of the straight talk I found in the book:

On the topic of how much to save for retirement — “Live frugally, save what you can, retire when you can afford to, and manage to a budget thereafter.” [Quote from Malcolm Hamiltom] So the key is to stay flexible. Be the tree that bends with the wind and you may live to retire at a ripe and rich old age.

On the topic how spending changes in retirement — “Despite all the stories regarding the cost of healthcare in retirement, seniors in 2005 spent an average of $1,733 per person, an amount $487 less per person than that spent by Albertans under 65”.

On borrowing to invest: “[However], I think leverage as we call it, is over-promoted and oversold. It is time to change the way we think about debt. Instead of going into more debt — even if it is good debt — we should start focusing on paying down our other debts first”.

The book is available for $30 (taxes and shipping included) through Jim Yih’s website. A review copy was furnished by Jim Yih. I should also mention I know Jim through our blogs and on Twitter.

Book Review: Pensionize Your Nest Egg

September 27, 2010

16 comments
[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.