Book Review: How Much Can I Spend in Retirement?

Thoughts on the book How Much Can I Spend in Retirement by Wade Pfau

Wade Pfau, Ph.D., CFA, has arguably been the most prolific and tireless academic researcher the financial planning profession has ever seen. Over the past decade or so, he has published dozens of journal papers, many of which I have read and cited in my own commentary over the years. His thought leadership has gone a long way toward elevating the quality of planning guidance delivered by thousands of financial planners, myself included.

His latest book, How Much Can I Spend in Retirement? is, in my opinion, a “must-read” for all financial planners and for any lay person with a thirst for answers to this most ubiquitous and worrisome consumer question. Using a clear, crisp plain-English writing style, Wade takes readers on survey of retirement planning research from William Bengen’s seminal 1994 Journal of Financial Planning paper, Journal Determining Withdrawal Rates Using Historical Data to the dozens of dynamic alternative and competing research concepts that have hatched over the ensuing 25+ years. In its totality, the book covers nearly every retirement spending concept that has found its way into journal publications and trickled down to the practitioner community.

Some points of disagreement...

In terms of critical commentary, I would not go so far as to say that all of Wade’s commentary should be regarded as gospel. Some of the strategies introduced in the book can be legitimately challenged, and I do not necessarily agree with all the concepts or methods that are presented.

For instance, in my opinion, the book overemphasizes and oversimplifies Monte Carlo analysis and glosses over its limitations as a planning tool (although this is a topic he has addressed in previous articles). I am also no great fan of the Value-Based Asset Allocation strategy discussed in the book and introduced in a 2012 Journal of Financial Planning paper Wade co-authored with fellow industry thought leader, Michael Kitces. In my opinion, this approach heads down the slippery slope of market timing and tends to run counter to Random Walk Theory (of which I am a proponent).

Further, although Wade tries merge theory into practice at the end the book, practical implementation is a persistent blind spot among academic researchers. There are many amazing strategies that may significantly enhance consumer spending and portfolio longevity in retirement, but many of them are only implementable algorithmically and/or may face behavioral resistance from investors.

For example, strategies that involve complex decision rules may not be practically implementable by advisors who must apply them to dozens of unique client portfolios. Similarly, clients may balk at strategies that require them to regularly adjust their spending up or, especially down, in response to market conditions.

Lastly, I am not entirely keen on Wade’s promotion of his firm, Mclean Asset Management, in both his book and his regular industry communications. Though it is certainly his prerogative do so, in crossing over from academia to the private sector in 2014, to me, Wade risks losing some of his objectivity.

More broadly speaking, one of the concerns I have with Wade’s writing – along with that of fellow research luminary, Michael Kitces – is that he is so prolific and so highly-regarded that his conversations tend to dominate the retirement planning discourse.

Both Pfau and Kitces have contributed mightily to advancing the planning profession to be sure, but there is some danger that their thought leadership may drown out or stifle alternative perspectives. At the end of the day, however, if ever there was a definitive guide to income sustainability in retirement, this book is it. I also recommend subscribing to Wade’s Retirement Researcher Blog.