Lauren Foster of the CFA Institute asked Wade Pfau, Michael Kitces, David Blanchett and I to suggest some resources for advisors dealing with retirement. What we suggested and a lot of other good stuff are available here. I think it’s well worth your reading.
After I wrote my Dave Ramsey piece yesterday (Math Suckage and Dave Ramsey), my friend Wade Pfau, a Princeton Ph.D., a CFA, and Professor of Retirement Income in the new Ph.D. program for Financial and Retirement Planning at The American College, wrote a piece on Ramsey and his suggested 8 percent retirement withdrawal rate: Dave Ramsey’s 8% Withdrawal Rate. My post noted that an 8 percent retirement withdrawal rate is “crazy,” but I focused on the 12 percent return assumption. Wade deals with Dave’s withdrawal rate nonsense head-on. He pulls no punches. Continue reading
My newest column is now available from Research magazine. Here’s a taste.
As [The Wall Street Journal's Jason] Zweig emphasized, we are all social animals. It is natural and inevitable for most people to measure their success and status against their peers, and advisors are people, too. Yet the advisor who loses business to the competitor proposing an unrealistic approach and envies him “has already lost the battle. [Warren] Buffett likes to say that companies get the shareholders they deserve. Ultimately, every advisor has to be reconciled to the perennial truth that you get the clients you deserve.”
Surely the best advisors will need to listen more carefully, to provide excellent advice and recommendations based upon the most thoughtful research, and to make their points in a way that resonates with clients both intellectually and emotionally. That’s far easier said than done, of course. Long-term financial and retirement planning is difficult business. As Dana Anspach sagely added, “It is hard to plan for something when you don’t want it to happen.” Indeed it is.
This need to avoid investing errors is particularly relevant to retirement planning. More retirees use systematic portfolio withdrawals to provide needed income than any other strategy by a large margin . The common rule of thumb is the so called “4% rule,” which generally postulates that one should be able safely to withdraw an inflation-adjusted 4% from a diversified portfolio of between 50% – 75% stocks annually and have the portfolio last for 30 years to roughly a 90% – 95% certainty.
However, recent research (summarized here and here ), much of it by my RetireMentor colleague Wade Pfau , “suggests that the sustainable withdrawal rate for retirees in 2000 could be much closer to 2% than to the 4% safe withdrawal rate rule-of-thumb.” The problem is largely on account of ” sequence risk .”
My latest RetireMentor piece is now up at MarketWatch. The link is below.
I commend some recent articles to your attention.
- Wade Pfau has written a new research paper called An Efficient Frontier for Retirement Income (summary on Wade’s blog here).
- Can we fix the widespread misinformation that is so prevalent?
- Looking at investment styles.
- Robert Samuelson says it’s time to retire the American Dream.
- Joe Duran on financial-life management.
- Here’s the best article I read this week.
- Idiot of the week; unless it’s this guy; or this woman.
- Don’t miss a visual presentation of the federal budget and the deficit problem — using charts and graphs – from Above the Market.
- As Barry Ritholtz points out, the bail-outs weren’t good investments at all; here he writes about QE3.
- The stupid, it burns.
- Nate Silver’s take on the state of the presidential campaign.
- Rob Arnott shows why target date funds need to be re-imagined.
- Eddy Elfenbein on the importance of extreme events.
- Are advisers worth their fee?
- An oral history of Cheers.
Michael Kitces published a piece in Investment News today recommending 11 investment blogs for financial professionals, including Above the Market in the 11. I’m in very good company with Michael’s Nerd’s Eye View, Tadas Viskanta’s Abnormal Returns, Wade Pfau’s Retirement Researcher Blog, and Josh Brown’s The Reformed Broker, You should read them all regularly.
My friend Wade Pfau has some new material available at his blog concerning the trade-offs between income guarantees on the one hand and personal control of one’s assets on the other as they relate to retirement income planning. I have linked them below. As usual, Wade’s work in both interesting and helpful. As Wade notes, “It seems like retirement income strategies boil down to where you want to fall on the spectrum between having control of your assets and hav[ing] guaranteed (inflation-adjusted) protections for life.”
I agree. But I would add that more control over one’s assets necessarily means being more susceptible to random — potentially negative and perhaps disproportionately negative (on account of statistical “fat tails”) — outcomes and thus (paradoxically) less ability to “control” one’s life in the long run.
I encourage you to read these posts and all of Wade’s (exceptional) work.
Some excellent resources on how much to save for retirement:
- The Center for Retirement Research at Boston College recently published an analysis of how much Americans need to save in order to be able to maintain a reasonable lifestyle in retirement. Published in November 2011, the report is titled “How Much to Save for a Secure Retirement.”
- Geoff Considine offers some helpful comments on the CRR report here.
- I’ve mentioned it multiple times before, but don’t forget Wade Pfau’s important paper, Safe Savings Rates: A New Approach to Retirement Planning over the Life Cycle. Wade blogs about this subject here.
- Wade has another excellent piece worth examining in this context: Getting on Track for a Sustainable Retirement: A Reality Check on Savings and Work. I also recommend his Withdrawal Rates, Savings Rates, and Valuation-Based Asset Allocation.