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Dr. Wade Pfau's Recent Paper on Comparing Withdrawal Strategies Available On-Line
Old 04-19-2015, 09:24 AM   #1
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Dr. Wade Pfau's Recent Paper on Comparing Withdrawal Strategies Available On-Line

Dr. Wade Pfau's recent paper comparing 10 withdrawal strategies during retirement is available for downloading at this web site: Making Sense Out of Variable Spending Strategies for Retirees by Wade D. Pfau :: SSRN.

Haven't had a chance to read it yet, but I hope it adds to the discussion on what a retiree should (or should not) do. I am actively researching this topic myself.

I did a quick search but did not see that this has been posted on these forums - it is posted on the Boglehead.com site.
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Old 04-19-2015, 04:36 PM   #2
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Would be nice if something besides a 50/50 portfolio was shown.


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Old 04-20-2015, 04:56 AM   #3
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I think the paper had some nice methodolgy and tested and me interesting sample strategies. I wish, however, there were a lot more data points made available to inspect the results.


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Old 04-20-2015, 11:45 AM   #4
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I think the paper had some nice methodolgy and tested and me interesting sample strategies. I wish, however, there were a lot more data points made available to inspect the results.
Had the raw data been included, the paper would have been much longer and would likely have exceeded the journal's guidelines on length. In scientific publishing, it is quite acceptable to contact the author with a request to see original data. Of course it helps to have specific questions.
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Old 04-20-2015, 11:51 AM   #5
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Thanks for the link. Mr. Pfau's strategies too often point toward annuities, but his papers are always worth reading.
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Old 04-20-2015, 12:16 PM   #6
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good article thanks!
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Old 04-20-2015, 12:54 PM   #7
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There is discussion with the author at this link:
Making Sense Out of Variable Spending Strategies for Retirees

He sounds like an agreeable fellow.
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Old 04-21-2015, 08:53 AM   #8
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Thanks for the link. Mr. Pfau's strategies too often point toward annuities, but his papers are always worth reading.
While assumptions certainly affect results......if the numbers point towards including annuities in a portfolio then include annuities.
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Old 04-21-2015, 09:06 AM   #9
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Way back in 1987, when got my first paying job, I was unsophisticated about investing for retirement and thought that I'd get all my retirement income from traditional pensions, annuities and social security. So I put all my savings into a deferred annuity and continued to contribute to the UK's SS system while also paying FICA so that I could eventually get SS checks from both the US and the UK. Since then I've had other jobs and learned a bit about investing, but never got over the feeling that pensions, annuities and SS should provide a large portion of retirement income. I now find myself in the position that I don't need to make any withdrawals from my mutual fund retirement investments for retirement income because I've made sure I have "guaranteed" sources of income. My approach might not be the way to maximize net worth, but not worrying about withdrawals from my IRAs (other than ROTH rollovers) is a nice way to start retirement.
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Old 04-21-2015, 01:24 PM   #10
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While assumptions certainly affect results......if the numbers point towards including annuities in a portfolio then include annuities.
There is no doubt an annuity has the potential to contribute positively to a retirement portfolio. It seems to me that Mr. Pfau frames the retirement finances in such a way that the annuity always shines.
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Old 04-21-2015, 03:01 PM   #11
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I am reading a very simple exercise book, in this case extolling the many benefits and ease of use arguments for indoor rowing. He says, " Many of you will want to know why, what if, etc ad infinitum." He suggests various reasons for this behavior, which he considers beside the important point of getting up every morning and rowing.

Same is true of retirement finance. All these well paid gurus have all sorts of often conflicting ideas about what we are 'sposed to do, but they actually always leave some important things unsaid. They have to, because a truly inclusive and robust solution does not exist, except work like hell for longer than you want to, do without much of what makes young adulthood fun, and be damn careful (and lucky) with your marriage. But who would buy this? They would even make a minority of the championship non-eaters of marshmallows found here.


The real truth is that one can give it a shot, and if it doesn't work ACA success has shown that it is easy enough to get accustomed to the dole. This is the real fallback in Europe and America.

To briefly return to guruology, if some unsophisticated person reads about how marvelous annuities are, and then rushes out to buy one, he may one day be quite sorry when it turns out that inflation is not permanently dead after all.

Another howler is "probability of ruin is zero, because no one would go on spending at the level that is not working out." Well, maybe not if she retired on $3mm and lived with a 2% withdrawal rate- ie. was very "over reserved", or has a good public sector pension, or is one of the fairly rare retirees that can go back to work at a salary close to their salary prior to retirement, or could severely downsizing their standard of living without in the process causing a divorce. Extremely vulnerable are retired men with young children and non-working wives. Their retirements could end, with them sitting in jail, unable to pay child support at the level deemed appropriate by family court, based on what they "could be earning".

People here tend to be lucky, but we don't all walk on water, so perhaps a bit of caution is warranted.

Ha
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Old 04-21-2015, 03:41 PM   #12
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Quote:
Originally Posted by haha View Post

...

All these well paid gurus have all sorts of often conflicting ideas about what we are 'sposed to do, but they actually always leave some important things unsaid. They have to, because a truly inclusive and robust solution does not exist, except work like hell for longer than you want to, do without much of what makes young adulthood fun, and be damn careful (and lucky) with your marriage. But who would buy this?
[Emphasis added]
...

To briefly return to guruology, if some unsophisticated person reads about how marvelous annuities are, and then rushes out to buy one, he may one day be quite sorry when it turns out that inflation is not permanently dead after all.

...

People here tend to be lucky, but we don't all walk on water, so perhaps a bit of caution is warranted.

Ha
+1
All excellent points. I have a lot of respect for Dr. Pfau. However, I agree with others who have stated that his XYZ conversation from advisors to their clients may be too complicated for most retail investors to contend with. I like Pfau's explanations but personally always bias toward simplicity.

I should also add some annuities and their mortality credits are part of my Plan C (if Plan B spending cuts fail) at ages 75 and possibly again at 85 should things not go as expected.
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Old 04-21-2015, 07:41 PM   #13
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+1
All excellent points. I have a lot of respect for Dr. Pfau. However, I agree with others who have stated that his XYZ conversation from advisors to their clients may be too complicated for most retail investors to contend with. I like Pfau's explanations but personally always bias toward simplicity.
I don't see how the XYZ test can be made simpler without losing something critical. If a retail investor cannot understand this measure then I think there is no hope for them other than to delegate decision making to an advisor that does understand.
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Old 04-23-2015, 09:30 PM   #14
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I don't mind if someone recommends annuities. My preference is diversified income sources, not necessarily all one source.
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Old 04-24-2015, 03:32 PM   #15
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I don't see how the XYZ test can be made simpler without losing something critical. If a retail investor cannot understand this measure then I think there is no hope for them other than to delegate decision making to an advisor that does understand.
I disagree about needing an advsior and refer back to Ha's excellent post above and ask why make something so unknown more difficult than it has to be?:

"All these well paid gurus have all sorts of often conflicting ideas about what we are 'sposed to do, but they actually always leave some important things unsaid. They have to, because a truly inclusive and robust solution does not exist, except work like hell for longer than you want to, do without much of what makes young adulthood fun, and be damn careful (and lucky) with your marriage. But who would buy this? [Emphasis added]

For this reason, I am a big fan of Bogle, Taylor Larimore, among others. Bogle discussed again in a recent interview the merits of keeping things simple. I agree.

Jack Bogle:*I Wouldn't Risk Investing Outside the U.S. - Bloomberg

From the interview:

Quote:
"Is there any new product or service that’s launched in, say, the past 10 years that has been a net positive in your view?"

"I am thinking.

On the face of it, no. New products aren’t typically about the business of investing. They are about getting people to buy and sell things. There are very few companies that focus on the long-term business of investing. Dodge & Cox and Longleaf are two exceptions.

The best thing you can do for yourself is to make your choice [of a long-term strategy], keep it simple and stick with it. When presented with all these new products, it’s caveat emptor. And don’t let your behavior get the best of you. Behavioral problems can cost you as much as the other embedded costs of active fund investing."
[Emphasis added]

There is no reason to believe the predictions underlying Professor Pfau's XYZ theory will turn out to be any more accurate than any others out there today (to his credit, he has stated on more than one occasion that no one can predict the future).
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Old 04-24-2015, 04:07 PM   #16
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So now we're down to a SWR of 2.86% based on the Trinity study data because this time things are different.
I need to go back to work for another 20 years.
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