Summary: How Much Can I Spend in Retirement – A Guide to Investment-Based Retirement Income Strategies

Until recently, there has been little effort on trying to create retirement income plans except for the formulation and acceptance of the 4% rule. Pfau has built a short career in the retirement field, but he is one of the best in the economics of retirement planning. In his book, he explores through models for retirement planning and approaches driven by expectations. The volume is for readers good with statistical analysis and have the financial expertise to implement high-level recommendations.

The author in a methodical approach and lengthy analysis of historical data and projections defines every method that he has suggested for retirement income planning. He lays out the processes and assumptions that he has merged in his simulations using Monte Carlos simulations which have become a fundamental ingredient in financial planning.

Pfau suggests spending and investment tactics with possible outcomes based on predictions of the future also states the relationship between spending and returns with ways to modify to compensate changes which occur in conjunction with pensioner’s personal goals and risk tolerance. The book focuses on critical investment advice, highlighting the benefits of delaying Social Security payouts and explaining ways to come up with bond portfolio.

Wade groups his approaches as either probability based which require analysis using simulation software or safety first depending on its risk of failure. He generates a sampling table (pg. 32) of retirement income strategies that classify them into two approaches. Using graphs, he illustrates and makes it clear to those planning to be involved in managing their retirement funds should be patient to study to study the possibilities to invest wisely.

With analysis of William Bengen’s 4% rule which state that safe spending rate from accumulated wealth is 4% for the amount at the beginning of retirement and the same inflation-adjusted dollar amount annually for the next 30 years at most leaving no money at the end of that time. He finds the process as justifiable due to its high chances of success but that not all as other factors can come in.

In chapter 3 which familiarizes us with the sequence-of-returns risk whereby one could fail due to considerations in costs of investments based on the analysis of the returns to wide-ranging indices of asset class returns.

Finally, he sums up with the description of how to approach retirement planning. He describes an outline approach used by McLean Asset Management; his advisory firm which he is the director of retirement research in developing plans for his clients. His approach is reasonable and detailed and assumes that clients have an assured degree of investment sophistication thus allowing them to make informed choices but that not the case as many clients may be highly educated but lack sophistication. The final chapter lacks the summary of all that had come before and did not recommend the approach one should use among the analyzed. The volume is a comprehensive and well-written guide to retirement preparation for those with financial knowledge.

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