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Wade Pfau is a renown expert in retirement research and planning. In September of 2012, he wrote up a research paper trying to identify the way to combine product allocations in retirement to optimally meet 2 competing objectives: meet minimum spending needs (and lifestyle goals), and maximize remaining financial reserves as a legacy to beneficiaries.
He looked at 5 products that could be combined in 10% allocation increments, which resulted in 1,001 different combinations:
The case study he used was for a couple who are both 65 and are looking to immediately start income in retirement. They are looking to withdraw 4% inflation-adjusted annually. The means and standard deviations he uses for stocks, bonds, and inflation are based on conservative current market conditions, rather than more optimistic conditions used in traditional safe withdrawal rate research.
The rest of his assumptions and parameters he uses can be found in his work. The link to his original research paper is here: An Efficient Frontier for Retirement Income by Wade D. Pfau :: SSRN. His original blog post is here: Wade Pfau's Retirement Researcher Blog: An Efficient Frontier for Retirement Income. He also has 3 other posts on his blog as follow-ups to the original post which can also be found on his blog.
His findings basically showed that in most cases a combination of nominal SPIAs and stocks accomplish these 2 competing objectives best, usually focusing on a heavier concentration of SPIAs. Although, he wants to build on his work to include DIAs, maximizing Social Security income, after-tax income, etc., his initial results are pretty interesting.
Although the Bogleheads forum has their own discussion about it, that's mainly coming from the perspective of do-it-yourself investors. I'd like to hear thoughts and inputs of financial advisors and insurance agents, since Wade considered both types of products without bias.
- What are your thoughts about annuitizing most of a nest egg immediately at retirement?
- Where do you think FIAs, either with or without an income rider, would fit in here?
- Would one or more DIAs along with a FIA w/ an income rider more efficiently solve longevity risk compared to a SPIA?
- How practical is say a 70/30 stocks/SPIA allocation, where now the market drops 40% and all of a clients liquid financial assets are in stocks?
- Any other feedback about his assumptions, results, practical issues implementing these suggestions, etc.?
He looked at 5 products that could be combined in 10% allocation increments, which resulted in 1,001 different combinations:
- Stocks
- Bonds
- VAs with GLWBs
- Nominal SPIAs
- Inflation-adjusted SPIAs
The case study he used was for a couple who are both 65 and are looking to immediately start income in retirement. They are looking to withdraw 4% inflation-adjusted annually. The means and standard deviations he uses for stocks, bonds, and inflation are based on conservative current market conditions, rather than more optimistic conditions used in traditional safe withdrawal rate research.
The rest of his assumptions and parameters he uses can be found in his work. The link to his original research paper is here: An Efficient Frontier for Retirement Income by Wade D. Pfau :: SSRN. His original blog post is here: Wade Pfau's Retirement Researcher Blog: An Efficient Frontier for Retirement Income. He also has 3 other posts on his blog as follow-ups to the original post which can also be found on his blog.
His findings basically showed that in most cases a combination of nominal SPIAs and stocks accomplish these 2 competing objectives best, usually focusing on a heavier concentration of SPIAs. Although, he wants to build on his work to include DIAs, maximizing Social Security income, after-tax income, etc., his initial results are pretty interesting.
Although the Bogleheads forum has their own discussion about it, that's mainly coming from the perspective of do-it-yourself investors. I'd like to hear thoughts and inputs of financial advisors and insurance agents, since Wade considered both types of products without bias.
- What are your thoughts about annuitizing most of a nest egg immediately at retirement?
- Where do you think FIAs, either with or without an income rider, would fit in here?
- Would one or more DIAs along with a FIA w/ an income rider more efficiently solve longevity risk compared to a SPIA?
- How practical is say a 70/30 stocks/SPIA allocation, where now the market drops 40% and all of a clients liquid financial assets are in stocks?
- Any other feedback about his assumptions, results, practical issues implementing these suggestions, etc.?
