Retirement Planning Most of Wall Street Doesn't Want You to Know About

Last Updated Oct 15, 2009 12:17 PM EDT

Over the years, I've seen and read copious amounts of self-serving advice on retirement planning. So when a truly great book comes out sans any motive for personal gain, it warms the cockles of my cynical heart. Written by folks William Bernstein calls "the wisest and most generous crowd on Wall Street," The Boglehead's Guide to Retirement Planning " offers investors some sensational objective and practical advice.

Here are a few highlights from this book.

The basics
First off, the book assumes you are not an expert. It covers simple practical tools from investment techniques, such as dollar cost averaging , to calculation short-cuts like the rule of 72. The book then covers the basics of our taxation. As a CPA, however, I can't make the claim that I actually understand our tax system.

Savings accounts and retirement Plans
Taxable accounts, tax deferred accounts, and tax-free Roth accounts come in all sorts of names, each with different rules, regulations, and taxable consequences. The authors do an amazing job of crisply explaining the differences, as well as how to maximize after tax returns. Should you convert your traditional to a Roth? This book is one of the few that gets it right and notes it has only to do with your tax rate today, versus when you withdraw the funds.

Managing your accounts
This is the part Wall Street insiders will really hate. It isn't about finding the next hot stock or paying a fortune to someone to manage your money. This section is about how to best fund your investments and how you should prioritize them.

Set an asset allocation target and rebalance to avoid following the herd. Write up an investment policy statement to help give you the focus and discipline to stay the course. The book contains gems to help you achieve this.

The retirement payoff
One of the most complex and important decisions investors will make is deciding when to start taking social security. The book does a brilliant job of navigating through the law and life's uncertainties to leave you with some practical strategies for finding the ideal time to start collecting. Generally speaking, if you are in good health, waiting decreases the likelihood you will run out of money.

The book covers some great nest egg withdrawal strategies, and notes ways of increasing cash flow such as paying off your mortgage, or even doing a reverse mortgage under certain limited circumstances.

Protecting your assets
Protect yourself and your family from anything you can't afford to lose. That includes anything from your income (life and disability insurance) to health insurance. The book also covers the best ways to pass your assets on to your heirs in a way that minimizes taxes. It then offers some handy ways to analyze needs and select the best coverage at the best prices.

Finding good advice
I especially like this section because it notes conflicts between the adviser and all three main fee models -- commission, percentage of assets, and hourly or fixed fee. They correctly note that even my hourly compensation model has some incentive conflicts.

The book addresses the subject of the 56 (at least) different financial designations that are out there, and how many of them are not meaningful. Though I'm sure they weren't referring to the 2009 Top financial planning plaque awarded to my dog, Max. They give some great advice on selecting a planner, yet correctly observe that there is no foolproof method of selection.

Timeless advice
With the exception of the changes in tax code, all of the advice in this book is timeless. And speaking of timeless, this book begins with a forward by John C. Bogle and advice he gave 15 years ago. From focusing on simplicity to diversification and long-term investing, all are as true today as they were when he first uttered those words.

My take
The authors had no personal gain from this effort, as even the royalties are being donated to the National Constitution Center. This book is a rare gem that focuses on practical implementable strategies and tactics that will work for you.

Spending a few hours reading this will not only put you ahead of ninety percent of financial planners, but could also radically improve your retirement. As an added bonus, if you have any questions, you can go to the Bogleheads Forum and ask away.

Author's note
My endorsement of this book appears inside.

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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.

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