HOW MUCH CAN I SPEND IN RETIREMENT?

A retirement manual deeply examines the theory behind common investment and spending models.

In this book, Pfau (Reverse Mortgages, 2016) is writing for financially savvy readers interested in exploring the reasoning behind models for retirement planning, with a spotlight on strategies driven by spending expectations. With frequent references to Monte Carlo simulations and the work of financial adviser William Bengen, Pfau leads readers through spending and investment tactics, presenting the many possible outcomes based on known probabilities and assumptions about the economy of the coming decades. The volume delves into the relationship between spending and returns, demonstrating how each can be adjusted to compensate for changes in the other and for the retiree’s personal goals and risk tolerance. With graphs illustrating every arrangement discussed, the book makes it clear that readers who plan to take an active role in managing their retirement funds must have the patience to study all possible scenarios in order to approach investing knowledgeably. The author is candid about the shortcomings of historical data as a basis for investment decisions because of the unusually low interest rates of the present day and the fact that the information is drawn from a limited number of overlapping periods that disproportionately emphasize the mid-20th century. While the work is focused primarily on the underlying theory, it does spend some time on concrete investment advice, highlighting the advantages of delaying Social Security payouts and explaining how to build a bond portfolio. The volume will likely be of greatest relevance to readers who are comfortable with statistical analysis and have the financial expertise to implement the high-level recommendations in the context of their own economic situations; audiences in search of more direct tips on retirement planning should look elsewhere. But for those with the necessary background knowledge, Pfau offers a clear and coherent text (“The argument is that when retirees instead have a front-end bond ladder, they know there is time for stocks to recover before they need to be sold”), which should help those intending to actively manage their retirement funds.

A detailed and well-written guide to retirement planning for those with financial literacy.