Similar authors to follow
Manage your follows
About Wade D. Pfau
Customers Also Bought Items By
Did you know that there is more than one way for retirees to meet their financial goals? Not everyone is comfortable relying on stock market returns from their investments. This book explains a different approach that first builds safety through a floor of reliable lifetime income.
This is the meaning of safety-first retirement planning.
In this book you will learn:
- How risk-pooling through insurance works
- Why risk pooling is a source of additional spending that is competitive with potential stock market returns
- How commercial annuities provide this risk pooling in the same manner as Social Security or traditional company pensions
- How replacing some bonds with insurance-based risk pooling assets can improve the odds for retirees to meeting their spending goal and to support more legacy at the end of life
I walk you through this thought process and logic in steps, investigating three basic ways to fund a retirement spending goal: with bonds, with a diversified investment portfolio, and with risk pooling through annuities and life insurance alongside investments.
I describe the potential role and underlying workings for different types of annuities including simple income annuities, variable annuities, and fixed index annuities. I explain how different annuities work and how readers can evaluate their options and make a choice about which way to go. I also examine the potential for whole life insurance to contribute to a retirement income plan.
When we properly consider the range of risks introduced after retirement, I conclude that the integrated strategies preferred by safety-first advocates support more efficient retirement outcomes. Safety-first retirement planning helps to meet financial goals with less worry. This book gives you the knowledge to evaluate different insurance options and implement these solutions into an integrated retirement plan.
How did I come to write this book? After completing my Ph.D. in Economics from Princeton University with a dissertation about Social Security reform, I become an economics professor who studied the pension systems in different countries. Eventually I gravitated toward individual retirement planning and now work with unique job title of "Professor of Retirement Income" and as director of the Retirement Income Certified Professional® designation for financial advisors. This requires me to be agnostic and to search for the best with different retirement income styles. If the safety-first approach isn't for you, you might also check my explanation about probability-based alternatives in How Much Can I Spend in Retirement?
Deciding how much to spend from your investment portfolio in retirement is an important complicated task. This book guides you through the process of determining a reasonable spending rate that will strike the balance between enjoying your early retirement years while preserving enough to be comfortable later in retirement.
How much can you spend in retirement? Naturally, this is an essential question for those approaching this important life transition. If you wish to retire one day, you are increasingly responsible for figuring out how to save during your working years and convert your savings into sustainable income for an ever-lengthening number of retirement years. The nature of risk also changes in retirement, as the lifestyle of retirees become more vulnerable to the impacts of market volatility, unknown longevity, and spending shocks. Retirees have one opportunity to build a successful plan. It is not an easy task, but it is manageable and I will explain how to do it.
I walk you through the findings of a large body of financial planning research regarding sustainable spending from investment portfolios in the face of a variety of retirement risks. That body of research tends to begin with the 4 percent rule of thumb for retirement spending. I explain how and why it was developed, what it means, and when it may or may not be appropriate for you.
I have reservations about the 4 percent rule. It may be too aggressive for current retirees for reasons including increasing longevity, historically low interest rates, high stock market valuations, the impact of the international experience with the 4 percent rule, the need to maintain a rather aggressive asset allocation, and because the 4 percent rule assumes that investors do not pay any fees or otherwise underperform the markets.
Other factors suggest that sustainable spending may be higher. Reasons include that actual retirees may tend to reduce their spending with age, that they build more diversified portfolios than used in the basic research studies, that real-world retirees may be willing to adjust spending for realized portfolio performance, and that some retirees may have the capacity and tolerance to accept higher portfolio failure probabilities because they have other sources of reliable income from outside their portfolios.
Other matters you will learn about is how to analyze a variety of variable spending strategies and how to create a bucketing strategy that uses bonds to support short-term spending needs and uses stocks and other growth assets to support longer-term spending goals.
Retirees need to weigh the consequences between spending too little and spending too much—that is, being too frugal or running out of assets. This book is about implementing what I call the “probability-based” school of thought for retirement planning. It is especially relevant for people who plan to fund their retirements using an investment portfolio and those who are hesitant about using annuities or other insurance products. For those considering annuities, I suggest my book, Safety-First Retirement Planning, which is also in The Retirement Researcher’s Guide Series. For now, we have plenty to discuss about investing for retirement.
How did I come to write this book? After completing my Ph.D. in Economics from Princeton University with a dissertation about Social Security reform, I become an economics professor who studied the pension systems in different countries.
This book provides an up-to-date understanding about reverse mortgages and how to use them as part of a complete and responsible retirement plan. Those who understand whether and how to fit a reverse mortgage into their retirement plan will have an important edge in achieving a financially secure retirement.
This book is special as I do not work in the reverse mortgage industry and am not trying to sell you a reverse mortgage. Rather, I am a Professor of Retirement Income and director of the Retirement Income Certified Professional® designation for financial advisors. I am also the Retirement Researcher. These roles require me to be agnostic and to search for the best from different retirement income styles and tools. This is what led me down the path of studying reverse mortgages and the role they can play in well-constructed and thoughtful retirement income plan. My perspective is on how to build strong retirement plans, and this is the perspective I bring to reverse mortgages.
Reverse mortgages have been surrounded by negativity. They were often mentioned alongside phrases like "last resort," "out of money," and "bad choice." My attention was drawn to reverse mortgages to give them an in-depth study. I concluded that reverse mortgages are not inherently a bad idea, though they are often misunderstood and not used in a most beneficial way. I realized that reverse mortgages---when used correctly---can provide an added layer of security for retirees and allow them to enjoy retirement more by having greater flexibility for their assets. Opening a reverse mortgage earlier in retirement and using it in a strategic manner is generally more effective that treating a reverse mortgage as a last resort option only to be considered when all else has failed.
After providing an overview of retirement income planning, which sets the context for understanding the potential role of reverse mortgages, I will give you a firm understanding about the basics for how reverse mortgages work. You will understand why they work better when interest rates are low (unlike every other retirement tool), the potential for line of credit growth, and their ability to help manage sequence of returns risk for investment assets. Then I dive into their flexibility and many potential uses:
- Use to refinance your traditional mortgage so you do not have fixed mortgage payments chomping away at your retirement assets in your early retirement years
- Use to fund home renovations to support aging in place and allow you to stay in your home for longer
- Use the Home Equity Conversion Mortgage (HECM) for Purchase program to obtain a new primary residence while reducing the strain on your other assets to cover the cost
- Coordinate spending from your reverse mortgage line of credit with your other investment assets to better manage the risks associated with a downturn in the financial markets
- Use as a bridge to help cover spending while delaying your Social Security benefits to get the most lifetime value from Social Security
- Use as a spending source to avoid shifting into a higher tax bracket or to pay for the taxes on strategic Roth conversions
- Use to pay premiums on existing long-term care insurance policies to avoid lapsing if there is a premium increase
- Use the growing line of credit as a protective hedge for your home value
- Use the growing line of credit as a source of reserves to cover unexpected bills or to divide the home valu