retirement planning textbook

Finally! A Text Book for Retirement Planning

Retirement Planning Guidebook: A Book Review


A Text Book for Retirement Planning!

Since I got into the business of retirement, I have complained that there is no text book on the topic of retirement planning. Nothing that puts all the puzzle pieces together in one place. 

Understand this: accumulation is easy! You just need a hefty savings rate and then invest consistently in a reasonable fashion.

Retirement planning, on the other hand, is a lot more difficult!

Turning accumulated assets back into income is tricky. There are multiple interactive moving parts, novel risks to consider, products galore (some of which are actually appropriate), and yet, no text book on the topic. Truly, it is the wild west of the finance world.

Finally! There is a new book, a text book for retirement planning:  Wade Pfau’s Retirement Planning Guidebook.


Retirement Planning Guidebook

Ok, Wade is dry and his writing thick. I do not recommend this book for a casual party. Even dedicated DIY investors have trouble finishing Wade’s previous books that I have recommended. 

Believe it or not, though, Wade’s new book is what we are all waiting for—finally—a textbook for retirement income planning.

This Retirement Planning Guidebook is actually appropriate for both the professional planner and for the advanced-DIY investor who wants to DIY retirement.

He calls it a guidebook as it goes step-by-step through his decision-making process depending on your retirement “style.”

Yes, it isn’t just about “safe” withdrawals from risk assets, it is a comprehensive guide to product allocation depending on your personality. Product allocation is important as you take many different resources with you into retirement, not just your portfolio. And we all have different temperaments which makes planning an individual sport.

It is a guidebook that reads like a text book. Enjoy!

Let’s start with the content, chapter by chapter.


Ten New Chapters, and Three Previous Books

Wade has 3 prior books, and three of the chapters in this book are reviews of his previous books.

contents text book on retirement income planning


As you can see, in the 13 chapters listed, there are three that summarize prior books.

Chapter four is from How Much Can I Spend In Retirement? It answers that question from the perspective of the traditional AUM financial planner… how much can you withdrawal from a portfolio of traditional investments.

Chapter five are reflections from his important book Safety First. Among his books, this is the most important to read if you don’t want to live (and die) by the 4% Safe Withdrawal Rate. What are your other options? Believe it or not, you can increase your odds of survival and the amount you spend if you don’t just depend just upon the stock market.

Chapter nine is from the best book out there on the Reverse Mortgages. These quondam bad products actually help the majority of people spend more in retirement yet leave a larger legacy. Sounds pretty good, eh? And, Reverse Mortgages are for the Wealthy, Too! Your Home—the slowest-appreciating-least-appreciated yet most-often-left-to-heir asset. We need to change that!

But let’s move on to the most important contribution from this textbook on retirement planning.


What are Retirement Income Styles?

Perhaps the most important contribution of this text book is from the discussion of retirement income styles.

I actually participated in some of the group work/surveys that helped Wade develop this process. He did the work at his current job, a for-profit business, which I guess pays better than being a professor. (Not that Wade has escaped controversy in the past, as he has been accused of pandering to the annuity business (research funded by annuity companies) and of falling out with Michael Kitces (perhaps due to the fact that Kitces doesn’t thing the “safety-first” perspective is actually “safe.”)) Fun stuff!

Just so we are clear, Wade is trying to make money through sales of his book, promotion of his income-style trademarked process, and in gathering clients and assets for his company. Not that these conflicts of interest disqualify him from writing the text book on retirement planning, as he has a great ability to make complex discussions easy to read (if not really dry and humorless).

He believes that each person (couple) has an individual retirement income style, and one does better in retirement if one pays attention to it… and the Retirement Income Factors.

What are the Retirement Income Factors?


Retirement Income Factors

the retirement income factors

Above, you can see Wade’s retirement income factors. He considers the primary factors to be the spectrum of investment risk you desire to take (probability vs safety first). Next he has a new dimension of optionality vs commitment.

I’m going to comment on this new dimension below, but first a summary of his secondary factors:

  • Time-Based vs Perpetuity Income Floors (which is bucketing vs guaranteed income for your basic needs)
  • Accumulation vs. Distribution (time segmented approach vs perpetual income)
  • Front-Loading vs Back Loading retirement income (in regards to when you have the most optionality, early or late in retirement), and
  • True vs. Technical Liquidity. This is an interesting idea that if you have all of your liabilities met, then you have true liquidity vs if you have no liabilities met, then your assets are actually tied up in future liabilities and not actually liquid. Think about this: if you have guaranteed fixed income that covers your expenses and insurance that covers the rest, then remaining assets are actually liquid and able to be spent on anything. Whereas if you plan to meet all possible future liabilities with variable assets, then the assets are actually already spoken for and you have no actual liquidity because you can’t be sure what your future liabilities are and you are spending down assets that may not be there. Interesting, as this places traditional liquidity planning on its head.

Those are the secondary factors, and from your factors comes your style. Once you know your style, then you can see what strategies are useful.

Let’s look now at the two main factors. These are envisioned to be spectrums; that is, you are not all one or the other, but usually somewhere in the middle.

The main continuum is Probability-Based vs Safety-First:

  • Probability-Based means earning a risk-premium from stocks then using some sort of systematic withdrawal strategy. This is popular among AUM advisors who want to manage your assets.
  • Safety-First is opposite along the continuum and indicates you desire guaranteed income via risk pooling (insurance). Obviously, insurance salesfolk favor this idea.

The second primary factor is new to this book: Optionality vs. Commitment.


Optionality Vs. Commitment

Wade adds a second primary factor in this work. I think this addition is less useful and will not be inculcated into the culture of retirement planning. But here it is:

  • Optionality-Oriented – Favors flexibility, not locked in regards to future liabilities
  • Commitment-Oriented – Committed to a plan, at least with some of your assets


Let’s see how these two primary factors look in a 4×4 retirement income style box.


Putting it all Together: Your Income Style

optionality vs commitment

Above, you can see the primary and secondary factors in a summary box that determines your income style.

East to West you have the probability vs safety-first continuum, and north to south you have optionality vs commitment-oriented. The arrow shows the main continuum that needs considered.

Then, the secondary factors are placed outside this matrix. I won’t go over each secondary factor, as you can read all about them in the book. To my eye, the secondary factors seem a bit redundant and less prescriptive. 

In regards to the primary factors, there are two assenting (the arrow) and two dissenting (the alternative) boxes to review.

Assenting: (2/3rds of people)

  • Probability with Optionality (1/3rd): classic total return via risk assets and systematic withdrawals
  • Safety-First with Commitment 1/3rd): classic risk pooling through insurance products

Dissenting: (1/3rd of people)

  • Probability with Commitment (1/6th): Wade suggests Fixed Index Annuities with Income Riders
  • Safety-First with Optionality (1/6th): Here he suggests time segmentation with the bucket approach


I have had a few folks feel strongly about time segmentation, so I can understand the desire to have some optionality despite a Safety-First mindset. That a FIA with an income rider is appropriate for someone who doesn’t mind stock market exposure, but wants to commit to a plan seems a bit forced to me yet. Maybe I’ll get there, maybe not. 

As I mentioned, I was intermittently involved in the surveys (preliminary research) while he was developing this tool. After gathering survey data, they did a multi-variate regression analysis to see which factors were related.

If you know anything about statistics, you can tell the matrix above is derived from a multi-variate regression. Shake and bake, throw it around, and see what sticks to the wall. Torture the data to reach statistical significance. 

Time will tell. That Wade’s boxes steer 2/3rds of people into annuity products goes against the grain of reality, though academic literature supports the use of risk pooling in retirement planning.

Whew, let’s move on to chapter two!


Risks in the Retirement Planning Guidebook

I’m going to keep this short. Here, in his Risks of Retirement segment, Wade borrows heavily from his work at the American College and the RICP’s 18 Risks in Retirement.

risk in the retirement income planning textbook


In summary, the risks in retirement are all multiplied by longevity risk.

Below that, there are macro risks, personal spending risks, and then the second big-daddy: inflation.

This section is pretty bread-and-butter, but the important concept to consider: there are novel risks in retirement that must be considered.

Speaking of bread and butter, aside from his other chapters which resulted in break-out books, the rest of the book is pretty much bread and butter. For the right person. See below.


Summary: Finally! A Text Book for Retirement Planning

As harsh as I may be on Wade, I do think this book is an important read as a professional or as an individual considering DIY retirement planning.

Again, the problem: where can I learn all this stuff? There is no text book for retirement planning.

Until now!

You won’t get a better primer on retirement (from zero to thirty-five MPH) than from Wade Pfau’s Retirement Planning Guidebook.

Wade says: know thyself, and create income from your assets in the safest and most effective way possible. Of course, for me, you must always think about your fundedness and desire to take risk when considering retirement, as the options vary greatly depending on these two factors.

Retirement Income planning entirely depends on your level of fundedness and the risk you desire to take!

If you have under-saved for retirement: focus on social security planning, as everything else flows from that decision.

If you have over-saved for retirement, then life is easy. The initial chapters are important to read. Where you sit on the Safety-First vs Probability-Based spectrum?

However, if you are constrained and might just run out of money, this book is for you.




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