Wade Pfau is one of the world’s foremost authorities on lifetime income research. He’s author of “The Retirement Planning Guidebook” and founder of Retirement Researcher, an educational website providing guidance for both individuals and advisors related to retirement income issues. I recently spoke with Wade as part of this week’s Bogleheads on Investing podcast, discussing topics including current low interest rate environments, annuity importance among retirees and how best to understand options available to you.
With low interest rates, many investors instinctively look for higher yielding assets to boost returns and yields. But what are the potential trade-offs, potential downsides of investing in lower-yielding assets vs benefits of higher-yielding ones, etc. We discuss all this and more during this interview.
Wade’s new book offers retirees a four-step plan for better understanding their choices and the associated tradeoffs, helping them better plan their retirement income. This approach involves understanding goals, identifying liabilities, and allocating assets accordingly; for instance using safe investments like cash or short-term Treasuries to cover basic needs before allocating more risky assets that might grow faster to cover contingency expenses like long-term care or health related needs. He suggests also creating a contingency fund.
As well as his approach to retirement income planning, he’s well known for his research on savings and investing. He’s created various calculators that help calculate how much is necessary for retirement as well as numerous articles published in various publications.
His most widely utilized guide for calculating retirement savings involves his model that allows users to input variables such as inflation, investment returns and withdrawal rates in order to understand how these will impact savings. This tool can be utilized by both individuals as well as financial professionals alike when creating customized retirement plans.
An annuity calculator that he has designed helps individuals understand how they work. It takes an individual’s current investments and projects how they will perform over an extended period, then compares this projection against how much income an annuity could potentially provide – thus showing just how much may be lost by not purchasing one.
Wade would like more financial advisors to recommend annuities, yet is quick to note that investment managers may be wary of doing so as they may not understand how annuities work. That’s why he is working toward getting more fee-only advisors familiar with annuities so they can effectively advise their clients and prevent their retirement income running dry. By educating advisors on annuities he hopes it can help prevent these clients from running out of income during retirement.