Wade D. Pfau
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About Wade D. Pfau
Wade D. Pfau, Ph.D., CFA, RICP, is the director of the Retirement Income Certified Professional designation and a Professor of Retirement Income at The American College of Financial Services in King of Prussia, PA. As well, he is a Principal and Director for McLean Asset Management. He holds a doctorate in economics from Princeton University and publishes frequently in a wide variety of academic and practitioner research journals on topics related to retirement income. He hosts the Retirement Researcher website, and is a contributor to Forbes, Advisor Perspectives, Journal of Financial Planning, and an Expert Panelist for the Wall Street Journal. He is the author of the books, Retirement Planning Guidebook: Navigating the Important Decisions for Retirement Success, Safety-First Retirement Planning: An Integrated Approach for a Worry-Free Retirement, How Much Can I Spend in Retirement? A Guide to Investment-Based Retirement Income Strategies, and Reverse Mortgages: How to Use Reverse Mortgages to Secure Your Retirement.
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Books By Wade D. Pfau
Deciding how much to spend from your investment portfolio in retirement is an important complicated task. This book guides you through the process of determining a reasonable spending rate that will strike the balance between enjoying your early retirement years while preserving enough to be comfortable later in retirement.
How much can you spend in retirement? Naturally, this is an essential question for those approaching this important life transition. If you wish to retire one day, you are increasingly responsible for figuring out how to save during your working years and convert your savings into sustainable income for an ever-lengthening number of retirement years. The nature of risk also changes in retirement, as the lifestyle of retirees become more vulnerable to the impacts of market volatility, unknown longevity, and spending shocks. Retirees have one opportunity to build a successful plan. It is not an easy task, but it is manageable and I will explain how to do it.
I walk you through the findings of a large body of financial planning research regarding sustainable spending from investment portfolios in the face of a variety of retirement risks. That body of research tends to begin with the 4 percent rule of thumb for retirement spending. I explain how and why it was developed, what it means, and when it may or may not be appropriate for you.
I have reservations about the 4 percent rule. It may be too aggressive for current retirees for reasons including increasing longevity, historically low interest rates, high stock market valuations, the impact of the international experience with the 4 percent rule, the need to maintain a rather aggressive asset allocation, and because the 4 percent rule assumes that investors do not pay any fees or otherwise underperform the markets.
Other factors suggest that sustainable spending may be higher. Reasons include that actual retirees may tend to reduce their spending with age, that they build more diversified portfolios than used in the basic research studies, that real-world retirees may be willing to adjust spending for realized portfolio performance, and that some retirees may have the capacity and tolerance to accept higher portfolio failure probabilities because they have other sources of reliable income from outside their portfolios.
Other matters you will learn about is how to analyze a variety of variable spending strategies and how to create a bucketing strategy that uses bonds to support short-term spending needs and uses stocks and other growth assets to support longer-term spending goals.
Retirees need to weigh the consequences between spending too little and spending too much—that is, being too frugal or running out of assets. This book is about implementing what I call the “probability-based” school of thought for retirement planning. It is especially relevant for people who plan to fund their retirements using an investment portfolio and those who are hesitant about using annuities or other insurance products. For those considering annuities, I suggest my book, Safety-First Retirement Planning, which is also in The Retirement Researcher’s Guide Series. For now, we have plenty to discuss about investing for retirement.
How did I come to write this book? After completing my Ph.D. in Economics from Princeton University with a dissertation about Social Security reform, I become an economics professor who studied the pension systems in different countries.
Did you know that there is more than one way for retirees to meet their financial goals? Not everyone is comfortable relying on stock market returns from their investments. This book explains a different approach that first builds safety through a floor of reliable lifetime income.
This is the meaning of safety-first retirement planning.
In this book you will learn:
- How risk-pooling through insurance works
- Why risk pooling is a source of additional spending that is competitive with potential stock market returns
- How commercial annuities provide this risk pooling in the same manner as Social Security or traditional company pensions
- How replacing some bonds with insurance-based risk pooling assets can improve the odds for retirees to meeting their spending goal and to support more legacy at the end of life
I walk you through this thought process and logic in steps, investigating three basic ways to fund a retirement spending goal: with bonds, with a diversified investment portfolio, and with risk pooling through annuities and life insurance alongside investments.
I describe the potential role and underlying workings for different types of annuities including simple income annuities, variable annuities, and fixed index annuities. I explain how different annuities work and how readers can evaluate their options and make a choice about which way to go. I also examine the potential for whole life insurance to contribute to a retirement income plan.
When we properly consider the range of risks introduced after retirement, I conclude that the integrated strategies preferred by safety-first advocates support more efficient retirement outcomes. Safety-first retirement planning helps to meet financial goals with less worry. This book gives you the knowledge to evaluate different insurance options and implement these solutions into an integrated retirement plan.
How did I come to write this book? After completing my Ph.D. in Economics from Princeton University with a dissertation about Social Security reform, I become an economics professor who studied the pension systems in different countries. Eventually I gravitated toward individual retirement planning and now work with unique job title of "Professor of Retirement Income" and as director of the Retirement Income Certified Professional® designation for financial advisors. This requires me to be agnostic and to search for the best with different retirement income styles. If the safety-first approach isn't for you, you might also check my explanation about probability-based alternatives in How Much Can I Spend in Retirement?
The Retirement Planning Guidebook helps you navigate through the important decisions to prepare for your best retirement. You will have the detailed knowledge and understanding to make smart retirement decisions:
- Understand your personal retirement income style, which can then help you navigate through the conflicting opinions about retirement strategies to choose your right path.
- Learn about investment and insurance tools that may best resonate with your personal style.
- Determine if you are financially prepared for retirement by quantifying your financial goals (annual spending, legacy, and reserves for the unexpected) and comparing them to your available assets.
- Make smart decisions for when to start Social Security benefits, which could potentially support an additional $100,000 or more of lifetime income from Social Security over your lifetime.
- Develop a plan for making the best initial and ongoing choices from the alphabet soup of Medicare options, as well as how to find health coverage if you retire before Medicare eligibility.
- Assess where you wish to live in retirement and whether there are helpful ways to incorporate housing wealth into your retirement strategy.
- Decide how to manage your long-term care risk between self-funding, Medicaid, or private insurance, and take steps to support living at home for as long as possible.
- Understand how to manage your taxes to pay less, to avoid common pitfalls, and to have more for your lifetime and your legacy. You will be able to apply tax diversification, asset location, tax bracket management, and Roth conversions to enhance the sustainability of your retirement assets.
- Get your finances organized and understand how to get your estate and incapacity planning documents in order, including your will, account titling, beneficiary designations, financial power of attorney, and advance health care directives.
- Identify whether there is a role for trusts in your estate plan for reasons related to avoiding probate, controlling how and when assets are disbursed, obtaining creditor protections, or helping to manage estate taxes.
- Prepare for the non-financial aspects of retirement, including the need to find purpose and passion, to understand if there is a role for work in retirement, to enhance relationships and social connections, and to maintain an active and healthy lifestyle.
Retirement has an entire vocabulary associated with it. We’ll demystify the 4% rule, sequence-of-return risk, time segmentation and buckets, reverse mortgages, income annuities, variable annuities, fixed index annuities, long-term care insurance, living trusts, irrevocable trusts, budgeting, the funded ratio, Medicare Advantage, Medicare supplements, diversified investment portfolios, Roth conversions, the hazards of the Social Security tax torpedo and increased Medicare premiums, buffer assets, 401(k) plans and IRAs, the rollover decision, distribution options for defined-benefit company pensions, required minimum distributions, qualified charitable distributions, aging in place, cognitive decline, and so much more.
The Retirement Planning Guidebook does not let important matters fall through the cracks. This is a comprehensive look at the key retirement decisions to achieve financial and non-financial success. You will have the foundation to make the most of your retirement years, and I hope you’ll be able to do something great!
Reverse mortgages are an important retirement planning tool. This book provides an up-to-date understanding about reverse mortgages and how to use them as part of a complete and responsible retirement plan.
I am a professor of retirement income. I may be the only author of a reverse mortgage book who does not work within the reverse mortgage industry. My focus is on finding ways to build strong retirement plans, and this is the perspective I bring to reverse mortgages.
I know that reverse mortgages can look expensive in isolation. But reverse mortgages should not be viewed that way. We need to focus on their overall contribution and interactions with other retirement assets as well.
Retirement is different from what people are accustomed to when working. Risks change. Retirees must sustain spending while not knowing how long their funds need to last, while managing the risks of a market downturn that can permanently derail a retirement portfolio, and while also being ready to manage unexpected spending surprises.
Reverse mortgages can help to manage these retirement risks by providing an additional resource to support spending and to coordinate with other investments assets.
My overarching interest is in building efficient retirement income plans to support the most spending potential for assets, both during life and as a legacy for the next generation. I demonstrate with case studies how reverse mortgages can contribute to better retirement outcomes in numerous ways:
- Coordinate between spending from the investment portfolio and from the reverse mortgage to better protect investments from market volatility
- Avoid the additional burden of fixed mortgage payments in retirement by refinancing a traditional mortgage with a reverse mortgage
- Pay for home renovations to help you comfortably age in place with the home you love
- Build a bridge to support getting the most lifetime value from Social Security benefits
- Use the reverse mortgage as a tax-free spending resource to better manage your taxable income
- Use the growing line of credit as a protective hedge for your home value or as a source of reserves to cover unexpected spending needs
This book provides the basics for how reverse mortgages work, why they work better when interest rates are low (unlike every other retirement tool), what their growing line of credit means, and how they help to manage investment volatility.
Reverse mortgages---when used correctly---can provide an added layer of security for retirees by creating flexibility for their assets. Opening a reverse mortgage earlier in retirement and using it in a thoughtful manner is generally more effective that treating it only as a last resort option.
Those who understand whether and how to fit a reverse mortgage into their retirement plan will have an important edge in achieving a financially secure retirement. This book shows you how.