The Retirement Planning Guidebook - Wade Pfau's latest and best

[kevink]

I imagine quite a few here are familiar with some of Wade Pfau's writing. I'd read a number of his papers and one previous book but I have to say his new one is head-and-shoulders above anything else I've read by him or anyone else in comprehensively addressing all of the major decisions faced by prospective or current retirees.

Having ER'd myself in 2002 when there were maybe 2 or 3 books that even mentioned ER I can say with certainty that I'd have done almost everything differently (and been both wealthier and less stressed during market downturns) if I'd had access to even half the info in this superb book.

Anyone considering it should definitely spring for the paperback rather than the ebook. It is a seriously weighty tome and one that almost any buyer will end up returning to many times over their lifetime.

Here's an excellent review of it:

https://www.theretirementmanifesto.com/retirement-planning-guidebook-a-book-review/

 

[Ready]

474 pages, yikes! Did you actually read the entire book? I’m curious what you would have done differently as a result of reading this book.

Also curious why you recommend the paperback rather than the ebook?

 

[Luvtoride]

Kevin, thanks for posting this. Sounds like a great resource. I’m going to read the book.

 

[pb4uski]

Sorry, I'll pass... I've given up on Pfau... over the years he's just turned into an annuity salescritter with a PhD.

 

[AbbA]

I read the same review and checked my library first. It had 4 copies on order so I reserved one two weeks ago. Today the book arrived and I picked it up.
I've read W. Pfau's papers (actually not the whole papers, but executive summaries ) over the years and I always found them very dry. So, I thought to read a free copy first and if it's as good as Manifesto's review says and as OP states here perhaps I'll buy the book for my library too.

 

[AbbA]

Sorry, I'll pass... I've given up on Pfau... over the years he's just turned into an annuity salescritter with a PhD.

That's exactly the opinion I've gotten about him too. And if I'm not mistaken he's not in academia anymore and works for some kind of firm of financial planners, and annuities are a big part of that business.
Hence my idea of getting a library book first (for the fear of reading about annuities that haven't enticed me yet).

 

[Koolau]

Without reading the book, I can't evaluate the annuity issue and its appropriateness. It's my opinion that in some limited case, annuities might make sense - especially if someone is on the edge of having enough. Knowing that you have a "guaranteed" amount coming in each month can be comforting if your stash is relatively small. Having said that, staying another year or two could be all the difference and mean you do not need an annuity to make it.

Some folks also like the idea of the delayed annuity (not sure that's the right term) where at, say 65, you buy an annuity that begins its payout at 80. This makes certain you have income when (maybe) your stash has been depleted faster than you thought.

Other than such limited applications, I'm not a fan of annuities. YMMV

 

[Sesq]

I am not yet FIREd, but I am leery of Wade. Seems like he is in the pocket of the insurance companies. I might read it if I have some free time. The review linked was more of a turn off than a turn on. They guy disclosed that he got an advance copy (good), but then it read like it was a positive review for a friend.

 

[RxMan]

Those limited cases where annuities make sense are when I’m the one selling them.

 

[kevink]

Sorry, I'll pass... I've given up on Pfau... over the years he's just turned into an annuity salescritter with a PhD.

This is a widespread - and incorrect - view of Pfau often proferred by folks who've never read him simply because they hate annuities. Dr. Pfau is a professor of retirement income at the American College of Financial Services. He certainly does wear another "hat" - and is careful to mention it - as a principal at McLean Asset Management - but most of the highly-regarded investment experts, from William Bernstein to Rick Ferri and Larry Swedroe, are also FA's and I don't see anyone accusing them of being "shills."

If anything characterizes Pfau's new book it's impartiality in the solutions it recommends. Yes he does recommend annuities and TIPS for as part of portfolios for some conservative investors but he certainly realizes that many if not most retirees will fall on what he calls the "probabilistic" end of the spectrum, with social security as their main if not only "annuity" and a diversified stock and bond portfolio otherwise. If he's an annuity shill so are William Bernstein, Zvi Bodie and everyone else who recommends a safety-first approach to risk-averse and or "won the game" investors.

Anyway the book is very comprehensive. IMHO the chapters on Medicare, Insurance and Long-Term care alone are well worth its asking price.

As for my recommendation to read it in paperback, it's 462 pages long and has quite a few charts and other graphics, making it hard to read (and even harder to search within) in ebook format.

There's a far more substantive discussion of the book - with Dr. Pfau participating - on Bogleheads (see link below)

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=357612

Wade was also just interviewed on the Bogleheads channel and the recording has been posted to YouTube:

https://youtu.be/wSmo9QZRpmg

 

[USGrant1962]

I'll put that on my list. A similar book and probably easier to read is Bob Carlson's The New Rules of Retirement, though it is 5 years old now. I read it before I pulled the trigger.

 

[braumeister]

If nothing else, Pfau is very thorough in his treatment of the subject. I just requested a copy from my library (they don't have it yet but it's on order).

 

[rodi]

I also requested a copy from my library.
(edited to add: actually, they didn't have a copy so I requested they purchase a copy.)

As for annuities. In this interest rate market they don't make sense... But SPIAs can provide a floor of income for some people that can make sense. (If the interest rates are high enough.) I don't rule out SPIAs in my future if rates improve - for a small part of my nest egg.

 

[Dog]

I’ve listened to a podcast interview with Mr. Pfau, read one of his books, and respect his views. I too have placed a hold on his new book at our library. They currently have the book on order. I will purchase a copy if I find it useful.

 

[pb4uski]

This is a widespread - and incorrect - view of Pfau often proferred by folks who've never read him simply because they hate annuities. Dr. Pfau is a professor of retirement income at the American College of Financial Services. ....

I guess that we'll just agree to disagree.

I was a Pfau fan for many years, but then it seemed to me that over time that he turned to the dark side. IMO, the American College is in the back pocket of the life insurance industry.... the American College is the sponser of the Chartered Life Underwriter designation... now many legitimate colleges are the sponsor of a "professional" designation? None that I can think of.

I worked in the industry for over 25 years. I don't hate annuities... while I don't personally own any annuities I have advocated for MYGAs and SPIAs on this forum at certain times. I am extremely skeptical of the value proposition of annuity flavors other than SPIAs and MYGAs. During a portion of my tenure in industry, I was the Controller of the annuity line of business for my employer.

 

[Midpack]

I guess that we'll just agree to disagree.

I was a Pfau fan for many years, but then it seemed to me that over time that he turned to the dark side. IMO, the American College is in the back pocket of the life insurance industry.... the American College is the sponser of the Chartered Life Underwriter designation... now many legitimate colleges are the sponsor of a "professional" designation? None that I can think of.

I worked in the industry for over 25 years. I don't hate annuities... while I don't personally own any annuities I have advocated for MYGAs and SPIAs on this forum at certain times. I am extremely skeptical of the value proposition of annuity flavors other than SPIAs and MYGAs. During a portion of my tenure in industry, I was the Controller of the annuity line of business for my employer.

+1. I also used to enjoy reading Pfau's papers, but he has definitely changed. Many of us here have indeed read Pfau, and used to discuss his work at some length, NOT an "incorrect" view of Pfau...

 

[brett]

When I was in my late 40's our banking rep did one of those retirement spreadsheets. Had to answer the usual questions.

BUT...I decided that I wanted to have a similar program. Got one, and did all sorts of whatifs for a number of years. Adjusting pension income, investment returns, inheritances, inflation, age of FIRE, etc both both of us separately and jointly. Estimated lifespan and estimated equity, income each year through retirement to estimated lifespan.

Over the years I played with the numbers. It gave me a better understanding of the various levers, the differences that various assumptions made...some significant.

So glad that I bought the program. I stopped using it when it was apparent that we more than secure financially...no matter what transpired. It was fairly inexpensive at the time. Payback in terms on knowledge and value was incredible for me.

I found that it complemented some of the retirement planning and financial advice books that I read.

 

[Sunset]

...
Some folks also like the idea of the delayed annuity (not sure that's the right term) where at, say 65, you buy an annuity that begins its payout at 80. This makes certain you have income when (maybe) your stash has been depleted faster than you thought.

...

So far, my delayed annuity will be called SS. I'm delaying to 70.

 

[kevink]

So far, my delayed annuity will be called SS. I'm delaying to 70.

Couldn't agree more and that's also one of the strongest recommendations in Pfau's book. He's well aware that SS is not only by far the best and most important "annuity" but the only one most people will feel comfortable with - or need.

I just spent 45 minutes doing the RISA (Retirement Income Style Awareness) quiz on his site and for my risk profile (moderately conservative, with an estimated 70% of essential living expenses covered by guaranteed sources of income [which they define as SS, pensions, bond ladder and/or annuities) it just recommended going with 55% equities 45% bonds in my portfolio and MAYBE considering an annuity for a chunk of the bond position at some future date depending on my personal longevity estimate and prevailing returns at the time.

 

[AbbA]

I just spent 45 minutes doing the RISA (Retirement Income Style Awareness) quiz on his site and for my risk profile (moderately conservative, with an estimated 70% of essential living expenses covered by guaranteed sources of income [which they define as SS, pensions, bond ladder and/or annuities) it just recommended going with 55% equities 45% bonds in my portfolio and MAYBE considering an annuity for a chunk of the bond position at some future date depending on my personal longevity estimate and prevailing returns at the time.

I did the RISA too but it didn't take me 45 mins, more like 25 mins. But clearly the way questions are written you can already guess the type of investor you'll be defined.

 

[RobbieB]

I'll leave Pfau unread. Like all the other gurus. I'll just figure it out myself.

 

[AbbA]

I've been reading the book, but perhaps more like thorough skimming than reading. I'm done with Chapters 1-3 and I don't know how long I will last. It's quite heavy for my taste. However, the way he lays out how to prepare for retirement made me question whether his approach is reasonable for an average person (I probably fall in such a category myself or at least I felt very average while reading this PhD's book).

So, let me ask y'all who are already retired: Did you build your own spreadsheets and did the following?

How did you determine your Retirement Balance Sheet?
Did you take a few years' of expenses and bring them to the real spending values by using CPI to get to the base average expenses? This is necessary for projecting retirement expenses (aka liability in this book)
Did you discount your non-COLA'd pensions and cash to get present value of reliable income?
Did you calculate the Funded Ratio for your retirement plan before you FIRE'd?

I mean, either retirement calculators make us lazy or Pfau's presented material is a tad heavy for those who are not into PV, NPV, Discounted cash values, heavy spreadsheets, etc.
He shows technical stuff how to calculate and shows tables of how expenses of the last few years were adjusted to present (2021 dollars) real values, etc. and it all makes sense, but boy, how boring it gets after a few pages (at least for me) and with a very dry writing style which is of course expected, IMO.
I will probably stick with retirement calculators.

E.g. When he presents the table of the Funded Ratio for the hypothetical couple in Ch.3 (both alive until age of 100 and retired at 65), he's VERY conservative and uses the current TIPS rate of 0% as the discount rate even though the Assets side of Retirement BS includes $1.9M of taxable accounts, IRA, and Roth IRA in addition to the discounted reliable income (SS, pensions, & checking account) of $1.8M. Like you can guess, this couple is underfunded (~93%). Mr. Pfau admits that perhaps people are not funding their retirements with TIPS only and maybe the discount value can be slightly increased, but he cautions to be very careful with that. He alludes that if you got annuities, then you'd be better.

BTW, I was surprised to see him showing Whole Life Policy as part of Assets though for legacy purposes. It just shows (IMO) that he really loves insurance products.

He projects 3.5% for stocks going forward. Take drag of taxes 0.75% and investment fees and it's barely 2% :-(.

Well, I made through 80 pages. It's not bad as a textbook but it's intimidating because now it made me feel that our funded ratio is probably less than 1 because I should use an extremely low rate for our assets going forward? He's either right that we are underfunded or wrong and is making me to oversave.

 

[RobbieB]

Just get yourself a whole life policy and an annuity. Good to go.

 

[Another Reader]

I think I will skip it. Not really interested in fancy math and I'm too busy figuring out where to invest the income from the rents, the pensions, Social Security, and that darned RMD that I have to take thanks to my parents' fiscal prudence.

 

[SecondCor521]

@AbbA:

I think his approach to retirement planning is overly complex, too academic, too conservative, and biased towards insurance products.

Personally, I built my own spreadsheet that incorporates some but not all of the stuff you mention. Like others here, I also ran as many retirement calculators as I could find on the web. But mostly I chose my parents and my retirement date well and continued to be frugal, so absent a meteor strike or societal collapse I'll be fine.

I doubt Pfau's book accounts for the almost certitude that both the couple in the example will not be alive at age 100. He probably also generally ignores the life expectancy curve - the cumulative probability that we're going to die before running out of money. This makes the 4% rule even safer than the 95% face value.

Including a whole life policy under assets makes sense from an estate tax point of view. If the decedent owned the policy, then the proceeds are considered an estate asset. Most people with large amounts of whole life transfer ownership of such policies to an ILIT (or similar trust, possibly) to get the proceeds out of their estate.