A spoonful of sugar helps the medicine go down. So sang Mary Poppins, but as Schulich School of Business Professor of finance Moshe Milevsky says, his newest book uses the same principle to help people understand their finances.
In what Milevsky calls a “very different book than what I usually write,” The 7 Most Important Equations for Your Retirement: The Fascinating People and Ideas Behind Planning Your Retirement Income (John Wiley & Sons Canada, Ltd.) not only looks at financial equations, but those responsible for coming up with them.
The seven people profiled in this book are responsible for shaping modern retirement calculations. Although they are now all dead, having been born as early as 1170 and as late as 1915, they made it possible to calculate things like how long your retirement income will last and how much you can spend every year.
And, although it is a little different from the usual financial how-to guides Milevsky writes, this recently published book has already created some buzz.
AdvisorOne: Investment News and Analysis for Financial Advisers calls Milevsky “a rock star on the adviser lecture circuit,” for his approach, making him, “one of the most important educators on retirement finance today.” AdvisorOne published several excerpts from the book.
The 7 Most Important Equations for Your Retirement straddles different genres – financial mathematics, actuarial science, retirement planning and biography, says Milevsky. But as “it’s not really enjoyable to think about finances or to talk about them,” he’s hoping this book will change that by spurring interest in the people who first developed the equations and calculations. “Hopefully, reading about the great scholars in this field will get people thinking about their own financial life.” The financial part, they will “absorb almost by osmosis.”
Who would know they’re learning about financial planning when they’re reading about a “comet-chasing astronomer following his father’s suspicious death and a plot to kill the King of England?”
That was Edmond Halley, the King of England’s personal astronomer, as well as a geophysicist, military engineer, physical geographer and surveyor. He catalogued stars and mapped the Earth’s magnetic fields. Halley’s Comet was named after him. He was also publisher and editor of Sir Isaac Newton’s principles. Halley came up with an equation to figure out pension annuities in 17th century England, at a time when many London residents had been promised lifetime pensions. No one knew how much money would be needed to fulfil the promise, and Halley’s work provided the first formal model.
Moshe Milevsky. Photo by Finn O’Hara Photography
The goal is to get people talking, says Milevsky. “At a basic level, this book is really about seven different conversations.” Conversations people should be having when doing retirement income planning. They are important because most of those heading into retirement “are not saving enough money to maintain their current standard of living,” but also “many are financially illiterate,” he writes.
For instance, “You can’t have an intelligent financial plan about retirement income without a conversation about your legacy,” he says. Life insurance becomes part of that discussion. That’s where Solomon S. Huebner comes in with his concept of human life value or human capital value – the present value of all the wages, salary and income a person will earn over their working life. He believed that human life value should be insured like property.
What will draw people in are the interesting people Milevsky brings to life as he shows that the retirement field as a science has solid foundations and an illustrious history. And although there are equations in the book, they are presented as art pieces at the beginning of each chapter.
Another of those people was Leonardo Fibonacci, who created present value analysis to calculate how long capital will last at a certain interest rate and given certain withdrawals. He devised this calculation in 13th century Pisa, Italy, well before calculators were invented. His technique is still taught to first-year business school students with only slight modifications 800 years later, says Milevsky. So if you have $300,000 in savings for retirement – how long will it last?
Benjamin Gompertz achieved scientific immortality. An Englishman who wasn’t allowed to attend university because he was Jewish, Gompertz developed the most famous mathematical model of human mortality, answering the question, “How long does the money have to last or how long will a person live?” He studied the odds of living until any given age and came up with the Gompertz law of mortality.
Beyond the financial aspects, Milevsky is interested in fostering the adoption of these seven as heroes of the retirement field. “There’s enormous literature on these people already, but they’re not widely known outside their own narrow areas.
“These are seven key figures in the history of ideas. Anyone who believes themselves an intellectual, or at the very least would like to retire someday, should know about these people,” says Milevsky. “One thing is for certain. Every one of them is fascinating.”
Milevsky has won two National Magazine Awards for his popular writing. He is also the author of Your Money Milestones (FT Press, 2010), Are You a Stock or a Bond? (FT Press, 2009) and The Calculus of Retirement Income (2006). He is a fellow of the Fields Institute for Research in Mathematical Sciences and executive director of its Individual Finance and Insurance Decisions Centre. He received a lifetime achievement award in 2009 from the Retirement Income Industry Association in the United States.
By Sandra McLean, YFile deputy editor