Retire Secure, by CPA/JD James Lange, is the best financial book I have read in the last year. I recommend you buy it and read it. However, it is not the first financial book you should read. But after years and years of reading pretty much everything I can get my hands on, I admit I learned a number of things I did not know while reading this book. If I'm still learning from it, chances are very good there is something in it for you too, no matter how experienced you may be with personal finance and investing.
The book is titled Retire Secure, with the subtitle, Pay Taxes Later- The Key to Making Your Money Last. I knew from the first pages that it was going to be great. I could tell it was well-written, well-edited, high-yield and most importantly, correct on perhaps the most important tax-related item for most docs- retirement accounts. It is endorsed by Roger Ibbotson, Burton Malkiel, Eileen Gallo, Ed Slott, and Paul Merriman. I read the second edition, published in 2009, which is just slightly out of date. The Third Edition, however, is due this Spring, and may even be out by the time this review is published on the site. Even if it isn't, the second edition is well-worth your time. Sure, there will be a few updates, but 90% of the lessons the book teaches are timeless anyway.
The book is written by a financial professional. And he does, at several points in the book, invite you to contact him if you need help. However, the way he does it is far superior to most. He teaches you everything you need to know to do it yourself, then says basically, “Hey, if you still don't get it, you can hire me. But I've got plenty of business and don't need yours. I just want to educate as many as possible.” Quite refreshing.
He divides the book into three parts. The first is the accumulation stage. I admit I didn't learn much here. But he gets everything exactly right and provides the best argument for maxing out your retirement accounts I've ever seen. The second part is the distribution stage. I learned quite a bit here. The last part is really its own separate book on estate planning, and very well done. Both at the beginning and at the end he provides a useful summary/outline of his recommended process. I'm going to reproduce it here:
If you are still working, please:
- Contribute the maximum amount to your retirement plan that your employer is willing to match or partially match.
- Contribute the maximum allowed to Roth IRAs and/or Roth 401(k)s or Roth 403(b)s.
- If you can afford it, contribute non-matching funds to your retirement plan.
- Deduct retirement plan contributions on your tax return, Form 1040.
- Allow these funds to grow income tax-deferred or in the case of the Roth, tax-free.
- Continue to make new contributions.
- Continue deferring taxes by deferring distributions.
- If your income is too high for Roth IRAs, consider nondeductible IRAs
At retirement when you need money:
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Consider a trustee-to-trustee transfer from your company 401(k) to an IRA or a one-person 401(k).
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Spend nonretirement assets (money you already paid income tax on.)
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Then, when your after-tax assets run down, spend your retirement plan money (IRAs, 401(k)s, etc.)
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Spend your Roth IRA last.
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Plan for needed or required minimum distributions during your lifetime.
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Keep your required minimum distributions to a minimum.
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Pay income taxes only when retirement funds are distributed to you.
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Put in place a specially drafted Change of Beneficiary Form for your retirement plan and IRAs. The plan recommended in Retire Secure!, Lange's Cascading Beneficiary Plan, could allow continued tax deferral up to two generations after your death while at the same time providing or overproviding for your spouse or other heirs.
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Determine if you are eligible for a Roth IRA conversion and, if so, determine whether and when it would be advantageous for a conversion to be made.
It sounds simple when put into that list, of course, but the details and the cogent, concise arguments he makes for each step is where the value of the book really lies. It's worth the purchase just to understand the Cascading Beneficiary Plan. I'm actually going to do 2 or 3 posts based on some of the best material in the book in the next month or two. If you can't wait that long, you know what to do. (The cheapskates like me will go reserve it from the library, and the smart people will go buy the book so they can keep it on their shelf as a reference.)
The very best part of the book shows up before you even get to page 1. Here it is:
This is a message I've been trying to drum into the heads of physicians for years. He used very reasonable assumptions to make this graph-
- Investment rate of return of 7% including 70% capital appreciation, 15% portfolio turnover, 15% dividend income, and 15% interest income.
- The “pay taxes later” guy makes retirement savings contributions of $5K per year. Mr. “Pay Taxes Now” pays 25% in taxes, then invests the rest. Both amounts are indexed 2.5% for inflation, starting at 30 and going to 70.
- At 71, both of them spend an amount equal to Mr. Pay Taxes Later's RMDs less income taxes.
- Ordinary tax rate is 25% both in accumulation and distribution years. Capital gains tax rates are 15% for the first three years (2008-2010 in the book) and then 19% after that. Dividends are taxed as capital gains for the first three years then as ordinary income later. (That part is obviously different now, but that's how the law was written back in 2008.)
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These are all reasonable assumptions, although you may wish to squabble over some of the minor points. At the end of the day, Mr. Pay Taxes Later ends up with $2 Million more while Mr. Pay Taxes Now runs out of money at age 90. Convinced of the merits of retirement accounts? You should be. He has a graph later in the book that adds on a stretch IRA for your heirs, which makes the case for retirement accounts even more dramatic.
Mr. Lange's book is a masterpiece and the best defense of the retirement account I have ever read. It took me a long time to figure out all the benefits of retirement accounts (asset protection, estate planning, lower taxes, higher returns, etc.) I could have saved myself a lot of that effort by just reading this book first.
Buy your copy of Retire Secure! today on Amazon!
Have you read the book? What did you think? Do you find Mr. Lange's case for retirement accounts compelling? Why or why not?
Whats your opinion on Ed Slott, the Ira guru. His PBS talks are all about tax free income in retirement. Lost trust in this man
Thats been discussed many times. Although permanent insurance can be tax free, it is still going to result in less money. The much lower return and the cost of those loans is a real problem. Only people who are insurance affiliated seem to recommend insurance and i doubt thats by accident.
I haven’t listened/read much of him. But I do see the whole life salesmen quoting him saying something positive about whole life.
Any details re ” Cascading Beneficiary Plan”?
Coming in another post.
not convinced in ret to liquidate my munis instead of taking ret plan distributions and paying the tax as my munis are returning around 4%
what say you
Run the numbers. There’s another post coming on this subject. One of the areas where I have a minor disagreement with Lange, but his arguments are strong so I recommend you read them.
Don’t you think it is better for the majority of your readers to contribute to traditional 401k rather than Roth 401k though?
I’m curious who you think the majority of my readers are. The only poll I’ve ever done showed about half were med students and residents, so no, I’m not convinced it is better for the majority to go traditional. However, most residents should go Roth and most attendings should go tax-deferred.
Oh wow, I did not realize that. I just assumed (erroneously) that most of your readers would be attendings (more money to need to know what to do with and whatnot). Anyway, that is great. I wish I had a resource like this when I was a resident.
A Roth is always better
Not true. Imagine a guy making $500K a year, retiring in 2 years, with no retirement savings. Should he go tax-deferred or Roth? Clearly tax-deferred.
That is a trick example! A guy making $500k with no retirement savings will not be retiring in 2 years.
That comment was great. Good point. But if he were able to learn from this site making that kind of money, he could probably retire in about 4 to 5 years, comfortably. Especially if the house is paid off and he saved like Mr. MoneyMoustache.
I was trying to make an example where it was very clear and obvious that traditional was better. Change the details as you see fit if you like.
However, it is important to point out that many people retire not when they have the financial resources to do so, but when they become disabled, incompetent, unemployed etc. I wish it were true that there were no doctors out there making big salaries with no significant retirement savings.
Can you please elaborate on why I would ever stop doing backdoor Roth conversions? I almost posted this exact question first thing this morning, but thought it might be a stupid question.
I am quickly entering the “phase out” of being able to contribute to a Roth and want to know why I would ever not do a backdoor? Also, burning question is rolling a 403b or 401k into a an IRA and converting to a Roth why that should or should not be done?
Thanks!
Well, if you didn’t want to save all that much, you might not want to do a backdoor. If you were choosing between tax-deferred and Roth, perhaps Roth wouldn’t be the right move.
It’s okay to convert a 401K to a Roth; that’s just one type of Roth conversion. Just realize there is a serious tax bill associated with that.
Just ordered the book. Thanks. The more we educate ourselves, less we are exposed to the wolves of wall st
Jim. Give us one or two pearls from this book
I have listened to ed slot on pvs and think he is not genuine or truthful
Mr. Lange has a radio show on a local Piitsburgh broadcast station. He gets some big name guests including John Bogle and Ed Slott. If you go to Jim Lange’s website you can listen to many of his past radio shows. He also has a few useful articles posted there. Though I find a lot of the blog posts and such to just be teasers for his book and seminars.
I believe Ed Slott started talking about whole life insurance as a strategy when it became more likely that distribution rules will change on inherited IRA’s. You never know what changes politicians will make until they do it. But the requirement that an inherited IRA be liquidated in 5 years or less seems to be one of the more politically likely proposals in recent years. Such a change could obviously result in a big tax bill to the beneficiary of a large retirement asset.
I was actually on Jim’s show recently, long after I had written this post and the next few coming up. I was honored when he told me John Bogle recommended me to him.
I agree that if the rules change, you might wish you had something else. But rule changes can go both ways.
Great website! I have been a fan for years now and recommend it to many others in my profession of dentistry. My accountant is not a fan of the high frictional costs that as an employer I will incur to set up a defined benefits plan, and feels that taxes in the future will very likely be higher. So, I have been maxing Simple IRA contributions and making after-tax investments as well. Either way the above graph makes an employee’s decision obvious, but I would like to see a graph like this for employers with additional costs, and alternately with a higher tax in the future.
There are so many factors it would be hard to model, but here is a post about it:
https://www.whitecoatinvestor.com/starting-a-401kprofit-sharing-plan-for-a-small-practice-friday-qa-series/
It comes down to whether you can reduce employee salaries to make up for the cost of the retirement plan.
Great book for some advanced strategies but certainly not the first book you should read. I listen to his weekly podcasts and always pick up a good idea or two. One idea I like of his is converting your traditional IRA’s to Roth IRA’s after retirement but before having to take the required minimum distributions at age 70 1/2 (with a traditional IRA) when your tax bracket is much lower than the high tax bracket you are in during your peak earning years. Will strongly consider that strategy when I reach that point in my life.
Absolutely. That’s a great time for Roth conversions.
Well way to go WCI, I just tried to buy his book and they are sold out on Amazon. You can buy one used for $63.04. I think I will have to wait for the third edition…
Sorry guys. I’d wait for the 3rd edition. Or you can check the library like I did.
You can preview this book on Google Books.
Worth perusing the Table of Contents.
https://books.google.com/books?id=tVbs_WkDhggC&lpg=PP1&dq=retire%20secure&pg=PP1#v=onepage&q&f=false
if YOU PLAY YOUR CARDS RIGHT YOU JUST MIGHT BE IN A HIGH TAX BRACKET IN RETIREMENT AS WELL
good idea to convert some of a large traditional ira to a roth for yourself, kids or grandkids-nice piece of change stretched out over 40 plus yrs
I was able to get a copy of the third addition and I have to say this is the book I have been looking for. It’s easy to read without skimping on the details. Combines excellent big picture planning with very specific, tangible and actionable information. This is an excellent book for all stages of financial and legacy planning, starting with the savings or accumulation stage then moving on to how to best draw down the retirement savings and finally ending with addressing estate planning and leaving a legacy. James Lange discusses his unique cascading benefits plan which allows for wealth preservation across generations. I believe that this is a must read for anyone interested in both maximizing their retirement spending power and providing for the next generation.
http://www.retiresecure.com/retiresecure.php
# 3: Although many people cringe at the mention of life insurance, this tool takes on a new importance with the higher tax rates and potential death of the “stretch” IRA. Life insurance remains the most tax-efficient way to pass wealth to the next generation, efficient and tax-free! Chapter 12 discusses these vehicles in detail. One critical point for insurance cynics to understand is that insurance premiums, even if they last a long time, is almost always less expensive than the additional taxes your heirs would pay without buying the insurance.
The third edition of this book is due to be out October 1st (per Amazon). From the preview, it looks like the relative value of Roth IRA vs insurance products may be changing.