Book Review: Retirement Planning Guidebook, by Wade Pfau

[TickTock]

A Ticktock book review

Retirement Planning Guidebook, by Wade Pfau, Ph.D., CFA, RICP (2025 edition, 495 pages)

[RICP = Retirement Income Certified Professional]

Summary: The book’s subtitle is “Navigating the important decisions for retirement success”. Pfau has his researcher’s hat on here – from the Preface, “Every individual has different needs and preferences, and this book reflects that diversity by presenting multiple approaches to help you find what’s right for you”. There is no attempt to find the perfect be-all-end-all strategy; instead, Pfau presents things in a ‘this product/strategy has these characteristics, which will appeal to folks who value those priorities’ light. I find this useful for understanding different strategies, including the ones that don’t resonate with me. This is not a quick read. It is not an easy read. But it is a detailed and useful read. Highly recommended.

Table of Contents

1. Retirement Income Styles & Decisions
2. Retirement Risks
3. Quantifying Goals and Assessing Preparedness
4. Sustainable Spending from Investments
5. Annuities and Risk Pooling
6. Social Security
7. Medicare and Health Insurance
8. Long-Term Care Planning
9. Housing Decisions in Retirement
10. Tax Planning for Efficient Retirement Distributions
11. The Non-Financial Aspects of Retirement Success
12. Putting It All Together

To shorten the review, I’ll concentrate on Chapter 1 and briefly summarize Chapters 2 – 5, each in a separate post. Please feel free to ask specific questions on these and other chapters.

 

[TickTock]

1. Retirement Income Styles & Decisions

There are vastly different viewpoints on how to approach retirement spending. We observe that on these boards. Pfau (with Alex Murguia) developed a survey to quantify six factors that go into retirement income style and analyzed the results. Two factors came to the forefront, with four secondary factors. The secondary factors are: Time-Based vs. Perpetuity income floor, Accumulation vs. Distribution, Front-Loading vs. Backloading income, and True vs. Technical Liquidity.

The first main factor is Probability-Based vs. Safety-First. Probability-Based depends on market growth potential (for example, a traditional diversified portfolio), while Safety-First has contractual obligations that are less exposed to market volatility (for example, a SPIA annuity or individual bond ladder). The second main factor is Optionality vs. Commitment. Optionality values keeping retirement income options open, flexibility to respond to favorable or unfavorable markets or a changed personal situation, while Commitment prefers solving for lifetime income needs; security of having a dedicated income solution is values over missing out on potentially more positive future outcomes.

Those two factors are made into a 2x2 matrix, the Retirement Income Style Awareness ® RISA Matrix ®.

Probability & Optionality = Total-return investing. The traditional diversified portfolio, safe withdrawal rate approach.

Safety & Commitment = Income protection. Preference for a lifetime income floor (income annuities) plus a more diversified total return portfolio for discretionary expenses.

Safety & Optionality = Time segmentation. The buckets approach; with cash, short term bond funds or a bond ladder, and equities in different ‘buckets’ for different horizons as to when the funds are needed. Although not discussed in the book, I would put the recent influx of CEF investors in this quadrant, seeking safety of more certain income and the possibility of growth (with growth also potentially coming from active trading of CEFs).

Probability & Commitment = Risk wrap. Desire for market participation and upside growth combined with a solution for a structured income stream. Things like deferred variable annuities, index annuities, and registered index-linked annuities. These are widely scorned on these boards for high fees. The book’s reframe of these fees is to consider what they buy in terms of downside market risk mitigation and handling longevity risk while providing assured lifetime income.

Even if you don’t agree with the concept, it does provide a useful shared frame of reference for discussions.

 

[audreyh1]

FWIW Wade Pfau pushes annuities pretty hard as part of retirement planning. He supposedly has connections to the insurance industry.

 

[TickTock]

2. Retirement Risks

Pfau notes the general financial definition of risk as volatility, notes its importance, and then goes beyond it. Major retirement risks are generally Longevity, Market / Sequence of Returns, and Spending Shocks (long-term care, health care, inflation, death of a spouse / divorce, changing public policy and tax rules, business risks for annuities and pensions, declining cognitive abilities, and others.

 

[TickTock]

3. Quantifying Goals and Assessing Preparedness

Do I have enough assets to fund the retirement I want? Pfau looks at four major retirement goals (Lifestyle, Longevity, Liquidity, Legacy), risks to achieving those goals, and tools to meet them and manage risks. Planning for budgeting and spending changes is discussed, then determining the “Funded Ratio”, which is determined by taking all projected cash flows into present value dollars using a fixed rate of return assumption as the discount rate. Note that Pfau always uses real, rather than nominal, rates of return and dollar amounts. The funded ratio starts with using TIPS real interest rates to determine if retirement can be funded without taking on market risk. If the funded ratio is less than 1.0 (100%), using higher discount rates based on taking on market risk is discussed (along with increasing assets and decreasing liabilities).

I found this an interesting way of determining retirement funding, as my natural inclination is to consider total-market return / volatility / SORR

 

[TickTock]

4. Sustainable Spending from Investments

This is the traditional diversified portfolio, safe withdrawal % approach. (FULL DISCLOSURE: This is my natural retirement income style.) Pfau notes that this 44-page chapter is a summary(!) of the content in his book How Much Can I Spend In Retirement? (FULL DISCLOSURE: This book is on my buy list.) Pfau starts with Bengen’s 1990s research that produced the “4% rule”, unpacks the many assumptions underlying the research, then analyzes seven reasons why the 4% rule may be too high and 5 reasons why it may be too low. These assumptions underly many of the discussions of the 4% rule on these boards. He then compares optimal to safe withdrawal rates and discusses how time segmentation (bucketing) and using ‘buffer assets’ (assets considered as held outside the portfolio and drawn upon when the portfolio is in ‘danger’). might help.

 

[TickTock]

5. Annuities and Risk Pooling

Pfau notes that this 45-page chapter is a summary(!) of the content in his book Safety-First Retirement Planning (FULL DISCLOSURE: This book is on my buy list, although this is not my natural retirement income style.) It discusses the basic logic behind annuities, how different types of annuities work, and how they can fit into a retirement income plan. Longevity risk can be managed by income annuities, as they pool mortality credits. SORR is also managed by income annuities. Types of annuities, pricing, options, rates of return, and how to fit annuities into a retirement plan are discussed.

 

[TickTock]

FWIW Wade Pfau pushes annuities pretty hard as part of retirement planning. He supposedly has connections to the insurance industry.

I didn't detect that in this book. He probably does in his Safety-First book. He also probably pushes traditional diversified portfolios in his How Much Can I Spend In Retirement book.

He also notes that he has often been viewed as a 'lower than 4%' advocate. Yet he lays out the pro and con positions in this book.

 

[Luvtoride]

Tick Tock, thanks for sharing this advance review in an easy to digest manner. I have read other Wade Pfau books including his Retirement Planning Guidebook… He certainly knows his subject and can explain these difficult concepts in an understandable way for most readers. I just wonder how much different or new insights this new book brings. It sounds like he has developed some “Styles” and grids based on various, spending, saving and investment behaviors.
Do you know when the book will be published? I will probably request it from my Library (rather than purchasing as I did the other).
Thanks.

 

[ArmchairMillionaire]

Tick Tock, thanks for sharing this advance review in an easy to digest manner. I have read other Wade Pfau books including his Retirement Planning Guidebook… He certainly knows his subject and can explain these difficult concepts in an understandable way for most readers. I just wonder how much different or new insights this new book brings. It sounds like he has developed some “Styles” and grids based on various, spending, saving and investment behaviors.
Do you know when the book will be published? I will probably request it from my Library (rather than purchasing as I did the other).
Thanks.

I also wonder how much different this is from the 2021 edition. I've had a copy of that one for a few years. Mine has 13 chapters, with chapter 11 being titled, "Legacy and Incapacity Planning" coming before "Non-Financial Aspects..." and "Putting It All Together".

 

[Koolau]

Probably 20 years late for me, but I probably should read it for sake of completeness.

 

[Luvtoride]

Koolau there is always something to learn from Wade Pfau.

 

[TickTock]

Do you know when the book will be published? I will probably request it from my Library (rather than purchasing as I did the other).

Published in 2025. January, I think.

ETA - I bought it on Amazon.

 

[TickTock]

I also wonder how much different this is from the 2021 edition.

From the Preface of the 2025 edition: "Since I released the first edition of this book in 2021, much has changed. We have been reminded that inflation is not always low, and the 2022 market downturn showed us that stocks and bonds can experience significant losses. Yet rising interest rates have also brought opportunities, improving retirement plan funding."

 

[MichaelB]

Probably 20 years late for me, but I probably should read it for sake of completeness.

Good. Please give us a book report when you’ve finished.

Just kidding. Not only is it 20 years too late (for both you and me), I’m pretty sure it wouldn’t change my approach to managing my retirement finances, so why bother?

 

[Lorenzo]

I read Wade Pfau's "Retirement Planning Guidebook" last year, along with Jane Bryant Quinn's "How to Make Your Money Last." The two titles are often mentioned when the question of book suggestions for retirement is asked. Comparing the two books' quite different approaches, I had to wonder if Pfau does not intentionally overcomplicate the whole endeavor. Any time I see trademarked approaches, such as his Retirement Income Style Awareness (RISA) ® Matrix, it makes me wonder what else is in this for him besides profit from the book. Is he selling something?

 

[2HOTinPHX]

Does he mention using reverse mortgages in this book as discussed in this thread I start a while back?

Using Reverse Mortgages in a responsible retirement Income Plan discussion.

Hello all, I have seen a few brief reverse mortgage discussions here regarding some specific situations and thought perhaps a more general discussion might be useful. I think the general consensus is to avoid them if possible and only use as a last resort for various reasons. Probably some of...

www.early-retirement.org

 

[TickTock]

Yes, in chapter 9. 12 pages of discussion.

 

[TickTock]

Is he selling something?

Pfau is, among other things, the director of retirement research for McLean Assessment Management. According to advisorsearch.org, McLean was registered in 1998, serves 23 state(s) with a licensed staff of 17 advisors, manages $819.2 million, and provides investment advisory services for 506 clients (1:30 advisor/client ratio).

 

[Dtail]

I know in the past, he has not been a proponent of the 4% guidance and perhaps if one listened closely they might have worked much longer.

 

[Lorenzo]

Pfau is, among other things, the director of retirement research for McLean Assessment Management. According to advisorsearch.org, McLean was registered in 1998, serves 23 state(s) with a licensed staff of 17 advisors, manages $819.2 million, and provides investment advisory services for 506 clients (1:30 advisor/client ratio).

This might help explain why I felt there was a subtle message running through the book that this stuff can be more complex than many retirees may care to undertake on their own.

 

[TickTock]

It is certainly mentioned more than once. . .

That was something I did not care for.

 

[MichaelB]

I know in the past, he has not been a proponent of the 4% guidance and perhaps if one listened closely they might have worked much longer.

This is one of the key issues that came up in previous discussions of Pfau’s work. He wrote back in ‘18 that 4% was too high becasue of high equity valuations (link here)

It is faulty logic to think that these are the success rates applying to new retirees today. The particular situation today is that interest rates are so low relative to history, and this is a very important matter when assessing the viability of different withdrawal strategies. Remember the initial lesson: lower returns imply lower spending. So while I know that the Trinity study is still quite popular in practice, I would suggest a lot of extra caution for anyone seeking to plan their retirements using its numbers.

Another area of disagreement is his assumption that unspent assents left after death represent a suboptimal outcome. This is pretty strongly contested around here. This is one of the reasons for such a strong push into annuities - it’s let’s one spend ‘til the end.

 

[TickTock]

Another area of disagreement is his assumption that unspent assents left after death represent a suboptimal outcome. This is pretty strongly contested around here. This is one of the reasons for such a strong push into annuities - it’s let’s one spend ‘til the end.

I didn't detect that assumption in this book. Legacy is listed as one of the four retirement goals. Annuities can support higher lifetime retirement spending than bonds alone, due to the mortality credits. So, a retiree worried about longevity risk and not concerned with leaving a legacy would tend to view lifetime income annuities more favorably, where a retiree who highly values leaving a legacy would tend to steer clear.

To paraphrase from my original post, the presentation is 'X has Y characteristics, which will appeal to folks who value Z.'

 

[MarieIG]

I haven't read his books, but have listened to his podcasts from time to time. I did find them interesting, although, like with many "experts" to whom I listen, I try to keep in mind their perspectives, and how applications might vary depending upon the particular listener.