Hinden - How to retire happy: the 12 most important decisions you must make before you retire

Copyright 2013 by Stan Hinden. All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.

ISBN: 978-0-07-180070-9
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Congratulations! You are about to read the splendid new edition of a wonderful, sensible, and simple book that will be a priceless asset to you. If youre thinking about retiring, have decided to retire within the next several years, or have decided not to retire just yetor even if you retired some years agoStan Hindens book will help you analyze the 12 vital decisions you must make at retirement and offer expert advice in each areaand do so in words that are easy to read, bereft of financial jargon and gobbledygook.

I happen to be in the category not ready to retire. While Im chronologically 83 years of age, if you measure by the age of the heart that was transplanted into my chest some 17 years ago, Im a mere child of 43. I love my work too much to stop just yet. But Ive already personally considered many of the decisions that Stan discusses, and I will be that much better prepared when (and if!) I finally decide to retire.

Most of my own expertise, such as it may be, is in the world of finance. My entire six-decade-plus career has been in the mutual fund industry, and I fully endorse just about every one of Stan Hindens recommendations about investing for, and in, retirement. To be able to afford a comfortable retirement, for example, importantly depends on the power of time and the magic of long-term compounding of investment returns, all the while sidestepping the tyranny of compounding excessive investment costs. Almost invariably, such a strategy is best implemented by using cost-efficient, tax-efficient index funds, a breed that is at last getting the widespread acceptance that it merits.

For most families, Social Security is a critical part of retirement income. Although we cant control the schedule of benefits, we can control the time when our payments begin. The advice this book gives is good: the longer you wait (up to age 70), the larger the check youll receive thereafter. While Social Security is designed to provide a minimal standard for retirement income, its stream of benefits can be estimated to have a capital value of some $300,000 at age 70. That value is even better than it looks, for it is the equivalent of a fixed-income investment with a built in hedge against inflationtwo priceless assets when you retire.

Stan Hindens book is also right on the mark in its chapters on making decisions about company pensions, 401(k) corporate thrift plans, and individual retirement accounts. His advice benefits greatly from his firsthand experience (some derived from his own investment mistakes) as he presents important information on investing during retirementvirtually all of which I heartily endorse. His five Golden Rules are, well, golden. Yet they are so simple and basic that too many investors pay no attention to them and suffer the consequences.

His advice on asset allocation and the need for significant holdings in bonds or annuities to produce income is also well worth heeding. That advice may have seemed too cautious in 2000 when the first edition of this book was published, right after the greatest bull market in history. But now, after two stock market crashes (in 20002002 and again in 20072009), the advice seems almost prescient.

Indeed, the kind of balanced approach to investing that Stan recommends has performed admirably in the 11 years since I wrote the foreword to the first edition of How to Retire Happy in August 2000. For example, a $10,000 investment in Vanguard Wellington Funda conservative balanced fund with about 65 percent of its assets in stocks and 35 percent in bondswould have provided an average annual return of 7 percent per year. That is, by August 2012, it would have grown to $22,500, assuming that all dividends were reinvested. While many investors complain about returns in the lost decade, that outcome seems remarkably satisfactory.

Alas, I must caution you that such a generous return is unlikely to recur in the coming decade. Current conditions in the financial markets are more challenging. In the bond market, the yield on the 10-year U.S. Treasury note has plummeted from 6 percent to just 1.6 percent, suggesting a reduction of some 70 percent(!) in bond returns during the years ahead. Some enhancement in return could be achieved by placing greater emphasis on an investment-grade corporate bond index fund, which now yields about 3 percent. There is, of course, some extra credit risk involved, and you should carefully consider this before you take action.