Wade Pfau's Retirement Researcher Blog

Blog is Moving to RetirementResearcher.com; Please Re-Suscribe via Email

2015-02-09T14:00:00.000-05:00

The blog has been quiet for a while, but not because it is going away. Rather, I've been receiving some great help to set up a new and improved website and blog at www.RetirementResearcher.com

The new website is now up and running, and soon all the links on this blog will be redirected to their new permanent homes. My blog continues over there, and there will be lots of new features on the website as well.

Thank you for everyone who's been a part of the growth of the Retirement Researcher blog thus far. There are over 2,000 e-mail subscribers already. As a part of transitioning to the new website, I do have to request that everyone interested to continue receiving the blog posts and other information by e-mail, to please resubscribe. I'm not going to be able to carry over the old subscription list. This link will get you to the resubscription page. When subscribing, the page asks whether or not you are a financial advisor. Either answer is okay, as this question is used to help direct more relevant information for different readers.

This is an ongoing issue of balance I am working with, as it may not be so common to have a readership which is quite evenly divided between financial advisors serving retirees, as well as individual investors planning toward their own retirements.

In addition to being the new home for the blog, RetirementResearcher.com also have some other new features. First and foremost is the Retirement Dashboard. It provides an up-to-date assessment about the costs of retiring today and what type of spending a typical saver could be expected to sustain when retiring at the present. Though I haven't started actively trying to promote the new dashboard, opportunities already came up for me to write about it at InvestmentNews and the Wall Street Journal website. I also have two detailed explanations (article #1 and article #2) about the dashboard methodology at Advisor Perspectives.

I'm hoping it will create a lot of interest as a one stop location which summarizes sustainable spending with the whole range of possible retirement income strategies from across the spectrum using both dedicated income sources and volatile investment portfolios.

I've also made a new and improved "Reading" page with links to my research articles and lots of good books on retirement income planning.

On the main homepage of the new website, you can also find 3 PDF e-books with "best of" content from the more than 300 blog posts I've already written.

Finally, longtime readers who are thinking in terms of their own retirements may like to have a look at the Retirement Readiness Review options now available. I'm working as Director of Retirement Research with McLean Asset Management to help build this one-time checkup opportunity for those who want to make sure that they're on the right track for meeting their retirement goals.

Thank you again for reading the blog and I hope to see you at the new and improved Retirement Researcher blog.

Rising Glidepaths and Liability-Matching Portfolios

2014-12-03T14:13:00.000-05:00

This week in the Wall Street Journal's Encore Report section, I have short pieces about reverse mortgages and budgeting in retirement.

Also, on Monday, William Bernstein published an article in the Wall Street Journal called, "How to Think About Risk in Retirement," in which he discusses rising equity glidepaths in retirement, and cites the rising equity glidepath article I wrote with Michael Kitces.

His column ends with:

Reverse glide path or two-bucket LMP/RP strategy? You say tuh-may-toe, I say tuh-mah-toe. Either approach will do a superb job of minimizing your risk of dying poor.

I like this quote, because for me it represents the distinction between probability-based and safety-first approaches to retirement income planning. In the research article, Michael and I discussed rising equity glidepaths in the context of being a probability-based approach.

But in presentations I've done, I generally discuss the strategy as more of a safety-first approach. That is how William Bernstein eloquently describes the strategy in his column. This is what he means by the term "liability-matching portfolio." Safer assets (individual bonds or income annuities) are matched to specific retirement spending needs, and then the remaining discretionary wealth can be invested more aggressively in a "risk portfolio." That's the LMP/RP in the quote.

As you progress through retirement using a relatively conservative spending strategy, you are generally going to find, if stocks can enjoy some growth, that the percentage of remaining assets required to cover remaining spending needs is going to decline over time.

Actually, Michael and I wrote the "probability-based" article after first observing this sort of phenomenon in a "safety-first" article. (I should note that these opinions are mine, as Michael thinks the distinction between these two schools of thought is artificial and would probably not explain our research in the same way as I currently am).

We had observed in an earlier article that if you put half of your assets into an income annuity at retirement, and the other half into stocks, and then you treat the present value of remaining annuity payments as a type of fixed income asset when measuring overall household wealth, your equity allocation will generally rise throughout retirement:

Source: Kitces and Pfau, "The True Impact of Immediate Annuities on Retirement Sustainability: A Total Wealth Perspective"

This is why I'm generally confident in the idea that rising glidepaths are justifiable. It can be explained either as (1) a risk management tool to get the same or slightly improved outcomes with a lower lifetime stock allocation using a probability-based approach, or as (2) the natural outcome of someone basing asset allocation on their funded status and devoting the necessarily percentage of their assets to safer assets covering their spending needs, and the rest of their discretionary wealth to more risky assets. Tuh-may-toe or tuh-mah-toe.

MarketWatch Panel Discussion with Bob Powell, Dirk Cotton, and Joe Tomlinson

2014-11-20T22:57:00.001-05:00

In October, Dirk Cotton, Joe Tomlinson, and I joined Bob Powell in New York City for a panel discussion about retirement income.

The end results are now available online. The MarketWatch Team produced four columns about the discussion, and there are short video segments interspersed throughout:

Robert Powell: Loading up on Stocks -- After you Retire

Elizabeth O'Brien: Do You Need a 'Safety-First' Retirement Plan?

Robert Powell: Is Your Retirement 'Fully-Funded'?

Elizabeth O'Brien: The Retirement Risks You Can't Predict

See more at the MarketWatch Retirement Adviser website.