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.
Struggling With Clients
My latest piece for MarketWatch is now available. Here’s a taste:
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 .”
Retirement: Winning the loser’s game
My latest RetireMentor piece is now up at MarketWatch. The link is below.
What matters most in retirement planning
I commend some recent articles to your attention.
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 gave a one-hour seminar presentation at California Lutheran University recently. It mostly focused upon his research on “safe savings rates.” You may view it below.
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.
Guarantees vs. Control
On the Pros and Cons of GLWBs
Safe Withdrawal Rates: Have I been barking up the wrong tree?
Some excellent resources on how much to save for retirement:
Regular readers of this site (thank you!) will know that I cite my friend Wade Pfau’s research on retirement planning — especially his work on safe withdrawal and savings rates — approvingly and often. His work is terrific and important. Morningstar has now made an article of Wade’s available which had been locked behind a paywall at the Retirement Management Journal and which summarizes his research about safe withdrawal rates. It’s an outstanding summary piece. Here’s a taste:
“High earnings multiples, low dividend yields and low nominal interest rates indicate that conservative retirees should adjust their forecasts for future asset returns downward, which further implies lower sustainable withdrawal rates. For prospective retirees, the real lesson provided by the historical data is not past portfolio success rates, but rather to see how maximum sustainable withdrawal rates have related to the underlying sources of asset returns.”
I also recommend Wade’s blog (note my Links Plus page).