We have now reviewed the main categories, or silos, of retirement income, and we’ve discussed why you will want to protect yourself against the new risks you face as you approach retirement.
In the coming chapters, we are going to start to tell you how to put it all together using a couple of different case studies, and we are going to take you through a step-by-step process to pensionize your nest egg. But these last few chapters of Part Two set the stage and provide the theoretical background for pensionizing your nest egg.
Accordingly, you might find this to be the toughest part of the book to slog through—but we believe the effort will pay off (literally) for you. To break up the task a bit, as we go along we’ve provided background and definitions of all the main concepts we’re asking you to work through.
In this chapter we are going to start by looking at retirement income planning from a new perspective. In this first section, we want to draw a distinction between financial economics and financial planning. Now, we are oversimplifying the distinction, but in general terms, a financial economist asks, “What resources do you have?” while a financial planner asks, “What lifestyle do you want?”
As you read through this next section, imagine you can choose from one of two sets of reading glasses to help make the text (and the ideas) clear. On one hand, there are the financial economics glasses, ...