More by the Same Author
2013-06-18 Retirement Income Designations – Which Should You Choose? by Wade Pfau (Article)
With more than 50 certification programs based on the withdrawal phase of the planning lifecycle, advisors are faced with a paralyzing choice about which designation provides the most valuable curriculum. Here’s some guidance on choosing the right program for advisors.
2013-03-05 Breaking Free from the Safe Withdrawal Rate Paradigm: Extending the Efficient Frontier for Retiremen by Wade Pfau (Article)
The traditional safe withdrawal rate approach that relies on a portfolio of only stocks and bonds produces among the worst possible outcomes for meeting spending needs and preserving financial assets for other uses. My research demonstrates there is a better approach.
2013-01-29 Are Planners Worth the Fees they Charge? by Wade Pfau (Article)
Could financial advisors who offer comprehensive services be doing a better job? Two recent studies shed a positive light on the potential of the financial planning profession to do right by their clients.
2012-12-11 The Next Generation of Income Guarantee Riders: Part 3 (The Income Phase) by Wade Pfau (Article)
In this third and final installment in my series on guarantee riders, I'll focus on the post-retirement income supported by income guarantee riders for variable annuities (VA/GLWBs), stand-alone living benefit riders (SALBs), and an unguaranteed portfolio of mutual funds. I'll highlight how differences among these products affect their end results, while also investigating what roles guarantees can most appropriately play in a retirement portfolio.
2012-11-13 How Well Does the Next Generation of Guarantee Riders Protect Your Income? Part 2 - Starting the Inc by Wade Pfau (Article)
Unlike traditional VA/GLWBs, the future payments from stand-alone income riders are tied to 10-year Treasury rates. That's bad news for retirees, who may find their future benefits compromised if interest rates remain at historically low levels - regardless of how the stock market performs.
2012-10-30 The Next Generation of Income Guarantee Riders: Part 1 - The Deferral Phase by Wade Pfau (Article)
Clients no longer need to move their assets to a variable annuity with a rider to guarantee lifetime withdrawal benefits, thanks to the RetireOne stand-alone living benefit (SALB) rider from Aria Retirement Solutions, which can be applied to a portfolio of mutual funds and ETFs. Despite this enticing promise, however, the SALB may not offer as much downside protection as advisors and clients expect.
2012-09-18 Your Clients' Toughest Retirement Decision by Wade Pfau (Article)
Want to trigger an impassioned debate? Ask a group of advisors about the choice between systematic withdrawal plans and single-premium immediate annuities. Fee-only advisors are loath to cede control of client assets to an insurance company that might someday default, while annuity advocates fire back that only their strategies provide a lifetime income guarantee.
2012-08-21 Secrets of a Great PowerPoint Presentation by Wade Pfau (Article)
Achieving your goals as a public speaker is never easy, and modern tools - especially Microsoft PowerPoint - can hinder as much as help, if used improperly. But a carefully prepared presentation with a clear underlying message, memorable visuals and a focus on making the message useful for the audience can strongly differentiate your speech and help you make a lasting impression.
2012-07-24 Deciphering the Annuity Puzzle: Practical Guidance for Advisors by Wade Pfau (Article)
Economists love to try to explain why people may act irrationally; such 'puzzles' inspire numerous researchers to probe their possible solutions. The annuity puzzle, which ponders why retirees do not buy more annuities, is a classic example. After describing the basic theory behind why this is so puzzling, I will address a variety of potential explanations, and then turn to the practical guidance the puzzle offers for advisors and their clients.
2012-06-19 Retirement Floors and Implications for Evensky's Cash-Reserve Strategy by Wade Pfau (Article)
Does sensible retirement planning call for funding basic needs with less volatile assets and investing more aggressively for aspirational goals? Or, with client goals clearly defined and prioritized, does sensible planning call for a total returns approach? Multiple schools of thought have emerged, but there is not yet any consensus about what constitutes a proper retirement income floor. These lingering unresolved disagreements reinforce the benefits of Harold Evensky’s and Deena Katz’ popular strategy.
2012-05-22 Life-cycle Finance and the Dimensional Managed DC® Pension by Wade Pfau (Article)
Pension plans are like cars, according to Nobel laureate Robert Merton. People want a car they can drive and a pension that will maintain their standard of living in retirement; they do not care about what goes on under the hood. Advisors, however, must care. So when a new pension-like option hits the market, as DFA's recently did, it's important to go beyond simply kicking the tires and carefully examine how it works as a retirement-saving vehicle.
2012-05-15 Optimizing Social Security Benefits by Wade Pfau (Article)
My dissertation was about Social Security reform, so I've read more of the Social Security Handbook than any human being should be forced to digest. Despite this background, William Reichenstein and William Meyer's new book, Social Security Strategies: How to Optimize Benefits, taught me a lot about how to strategize to get the most out of Social Security.
2012-04-17 Rethinking Safe Withdrawal Rates: The Meaning of Failure by Wade Pfau (Article)
Merely knowing the probability that an investor's wealth will be depleted at some point is not enough to build a retirement strategy. That is the traditional measure of failure in safe withdrawal studies, and it's time to move beyond it.
2012-03-13 How Do Spending Needs Evolve During Retirement? by Wade Pfau (Article)
Most people's spending patterns change over the course of retirement - expenses look very different at 90 than they do at 65. Yet most research on retirement withdrawal rates relies on constant inflation-adjusted withdrawals to develop a client's forward-looking budget. Such an unrealistic, one-size-fits-all approach can be disastrous if a client inadvertently retires with insufficient savings. Is there a better way?
2012-02-14 The Safety-first, Goals-based Approach to Financial Planning by Wade Pfau (Article)
Little of what is taught in traditional investment textbooks is of value in personal financial planning. Risk is not standard deviation; it is the probability and consequences of not meeting one's goals. That real-world perspective animates a new book by Zvi Bodie and Rachelle Taqqu that implores advisors and their clients to lock in the funding of their essential expenses before worrying about their discretionary goals.
2012-01-10 Safe Withdrawal Rates: A Do-It-Yourself Approach by Wade Pfau (Article)
Reconciling the assumptions that underpin safe withdrawal rate studies with one's own capital market expectations and constraints is a daunting task, since those studies rarely reflect the practical realities of an advisory practice. But new research now provides a generalized framework for determining a safe withdrawal rate for a given retirement duration, acceptable failure probability, asset allocation and capital market expectations. Advisors no longer must be constrained by the assumptions and choices of others.
2011-12-13 GLWBs: Retiree Protection or Money Illusion? by Wade Pfau (Article)
One of the most popular variable annuity riders is the guaranteed lifetime withdrawal benefit (GLWB), which offers downside protection through lifetime income, upside potential with step-ups based on market performance, and minimal surrender penalties. But, examining historical data, I have found that those riders carry a cost that will not be readily apparent to retirees: their cash flows rapidly decrease on an inflation-adjusted basis.
2011-11-15 Are TIPS Really Safe and Worry-Free? by Wade Pfau (Article)
The Fed's aggressive monetary easing has many investors considering TIPS as a cornerstone of their retirement strategy. While TIPS' unique ability to protect against CPI-based inflation is undeniable, many investors neglect to consider the risks they pose, particularly for those who have not yet reached retirement.
2011-11-08 An International Perspective on Safe Withdrawal Rates by Wade Pfau (Article)
Prospective retirees must consider whether they are comfortable basing retirement decisions on the impressive but perhaps anomalous numbers found in historical US data. What has been safe for US retirees in the past has been far less secure for their foreign counterparts.
2011-07-19 Retirement Planning and Worst-Case Scenarios by Wade Pfau (Article)
New research suggests that skepticism in a 4% safe withdrawal rate (SWR) is well justified. It is perhaps due to good luck that American retirees have not yet experienced a withdrawal rate below 4%. But a better approach than worrying about SWRs is to focus on the savings rate needed to meet your retirement spending goals, not on what the safe withdrawal rate is.
