Book Review: Retirement Planning Guidebook, by Wade Pfau

[MichaelB]

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.'

Fair enough. Maybe it is time to revisit his analysis of retirement financial models.

 

[target2019]

The book sounds like a comprehensive textbook for advisors.

I appreciate the summary provided by OP.

 

[TickTock]

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.

I bought those two books at the same time and read Quinn's first. Pfau covers more approaches, but I'm not sure how different their approaches are. Quinn likes SPIAs in certain circumstances, which seems to me to line up closely with Pfau's Safety-First method. In other cases she likes the Total Return method.

Quinn is certainly an easier read than Pfau. I like both, but keep in mind that for paid employment I was an engineer...

 

[Koolau]

Quinn is certainly an easier read than Pfau. I like both, but keep in mind that for paid employment I was an engineer...

Oh. One of those.

 

[TickTock]

Yah. Big-time.

While I'm thinking about it - Quinn likes bond funds and dislikes individual bonds/bond ladders. And also is not a fan of traditional stock dividend income investing.

 

[Echard]

Interesting that he is pro-annuities. As someone without a pension, I was always interested in the potential risk reduction it could provide. However, I'm suspicious by nature and my worry is that if the market significantly underperforms for a long period of time, the companies who sell annuities might find themselves in financial trouble. As a result, I never seriously considered them.

 

[Echard]

Why doesn't Quinn like bond ladders?

 

[Lorenzo]

Why doesn't Quinn like bond ladders?

It's been a while since I read the book, but I don't recall it revealing her thinking on that. Rather, I got the impression that her reluctance to advocate individual bonds and ladders built from them was that it was part of an overall goal of simplifying retirement planning. The book talks about taking distributions from either the equity fund portion or the bond fund portion in a way that helps rebalance the AA. This seems to assume bond funds and equity funds move in opposite directions, and as we saw in 2022 it doesn't always work that way.

 

[TickTock]

As someone without a pension, I was always interested in the potential risk reduction it could provide. However, I'm suspicious by nature and my worry is that if the market significantly underperforms for a long period of time, the companies who sell annuities might find themselves in financial trouble. As a result, I never seriously considered them.

That is a risk with annuities, yes.

 

[TickTock]

Why doesn't Quinn like bond ladders?

She favors bond funds, for the usual reasons: broad diversification, liquidity, low transaction costs.

 

[Lorenzo]

She favors bond funds, for the usual reasons: broad diversification, liquidity, low transaction costs.

Yep. You made me want to look it up, and there it is. In a section on "The case against buying individual bonds" she discusses why she doesn't even advocate Treasuries and TIPS. Interestingly, she concludes with this, which I suppose relates to the liquidity issue: "If individual bonds have a place at all, they're for wealthy people with large amounts of money to invest, not portfolios of small or medium size."

She follows this with a section on "What about building ladders with individual bonds?" and concludes that they, too, are for high net worth individuals, and "For the rest of us, ladders waste our time and interfere with sensible withdrawal plans. Use mutual funds instead."

Wow. I read her book back before I had really dived into following the discussions on this forum, and it all sounded persuasive at the time--so simple, one-size-fits-all. Quite the opposite of the Wade Pfau book.

 

[TickTock]

I have purchased and received both How Much Can I Spend In Retirement? and Safety-First Retirement Planning. It will take some time to read and digest both, and I'll likely take a break in between reading them.

 

[TickTock]

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

Yes, in chapter 9. 12 pages of discussion.

I enjoyed learning things about HECM's (reverse mortgages) that I wasn't previously aware of, including some reasons to use them that were completely outside my previous thoughts.

 

[Dtail]

Interesting that he is pro-annuities. As someone without a pension, I was always interested in the potential risk reduction it could provide. However, I'm suspicious by nature and my worry is that if the market significantly underperforms for a long period of time, the companies who sell annuities might find themselves in financial trouble. As a result, I never seriously considered them.

His employment might be swaying him to pro annuities.
As for annuity safety, many perhaps all states have a guaranty at least for MYGA's (Multi Year Guaranteed Annuity) which in keeping with the state limits will provide a State version of the FDIC guarantee.

 

[TickTock]

I started reading Pfau's Safety-First Retirement Planning. Interestingly, there is a plug from Jane Bryant Quinn on the back cover: "Wade Pfau is among the most trusted names in personal finance. He's clear, fair, and bases his advice on solid research. You never have to get trapped by a financial huckster again. Wade's books and blogs are your reality check. Mine, too!"

 

[engineernerd]

His employment might be swaying him to pro annuities.
As for annuity safety, many perhaps all states have a guaranty at least for MYGA's (Multi Year Guaranteed Annuity) which in keeping with the state limits will provide a State version of the FDIC guarantee.

Thanks for that info! One of the reasons I've never seriously considered annuities (or LTC insurance) was the same as Echard's (default risk).

I looked into it a bit, and according to this website every state has a Guaranty Association, which is a state-law-mandated private organization that is supposed to pay out if a company fails: State Guaranty Associations: Protection for Annuity Owners

According to the FAQs on my state's Guaranty Association website, your coverage is from the state where you live when the company fails, or if the company is not a participant in that state then the state where the company is domiciled, not the state where you originally bought the annuity, so it might be safer to assume only $250k of coverage even if your state's limit is higher.