Episode summary
The Long View: Wade Pfau - Higher Bond Yields Are a Plus for Retirees
The Long View
· · 55 min · Hosts: Ben Johnson, Christine Benz, Amy Arnott · Guests: Wade Pfau
Summary
Wade Pfau argues that higher bond yields have materially improved the starting point for new retirees. He points to roughly 2.4% real yield on a 30-year TIPS ladder, which he says supports about a 4.6% sustainable withdrawal rate, making today’s conditions better than the negative-yield environment of a few years ago. He also says the retirement-income decision should come before the asset-allocation decision: once essential spending is covered by reliable income, retirees can often invest the remaining portfolio more aggressively.
A major theme is that there is no single best retirement style. Pfau says the four retirement income styles — total returns, time segmentation, income protection, and risk wrap — are all valid, and the best choice depends on whether someone is probability-based or safety-first, and whether they prefer optionality or commitment. He favors flexible spending rules over a rigid 4% rule, especially the floor-and-ceiling approach, because it can reduce sequence risk and support higher average spending.
Pfau also says retirees should plan around the retirement risk zone, especially the five to 10 years before and after retirement, by using tools such as target-date funds, annuities, TIPS ladders, or a Social Security delay bridge. He is cautious about opaque annuity products and private-equity ownership of insurers, and recommends starting due diligence with worst-case outcomes rather than marketing features.
Key takeaways
- Pfau says higher bond yields are a plus for retirees because a 30-year TIPS ladder now supports about a 4.6% inflation-adjusted withdrawal rate.
- Pfau says the four retirement income styles are all viable, and the right one depends on a retiree’s preferences for risk, flexibility, and commitment.
- Pfau favors flexible spending rules, especially the floor-and-ceiling method, because he says rigid inflation-adjusted withdrawals can create unnecessary sequence risk.
- Pfau says delaying Social Security without a bridge increases sequence risk, so retirees should carve out a TIPS ladder, use part-time work, or another dedicated bridge.
- Pfau says annuity due diligence should start with worst-case scenarios and that opaque proprietary indices and private-equity-backed insurers raise concerns.
Notable quotes
“right now, if you were to build a 30-year bond letter using TIPS or Treasury inflation protected securities, the real yield before inflation coming out of that is around 2.4%”
“I think it's very important to move in that direction because right now most retirement plans, they're really focused only on having investment options”
“they're all viable valid approaches and so I would say they're all equally valid”
How the episode opens
Please stay tuned for important disclosure information at the conclusion of this episode. Hi and welcome to the long view. I'm Christine Benz, director of personal finance and retirement planning at Morning Star.
And I'm Amy Arnot, portfolio strategist for Morning Star. Our guest on the podcast today is retirement researcher Wade Fowl. Wade is the founder of Retirement Researcher, an educational resource on retirement planning for individuals and financial adviserss.
He's co-founder of the retirement income style awareness tool and a co-host of the Retire with Style podcast. He's a professor of practice at the American College of Financial Services and a research fellow with the Liur Retirement Income Institute and he's also a principal and director of retirement research for McClean Asset Management. Wade has written several books, including his most recent, a third edition of his retirement planning guide book.
He holds a doctorate in economics and a master's degree from Princeton University and Bachelor of Arts and Bachelor of Science degrees from the University of Iowa. He's also a chartered financial analyst. Wade, welcome back to the Long View.
Thanks, Christine. It's a pleasure to be here. — Well, it's great to have you here. Your retirement planning guide book is, I would say, the definitive guide for anyone who's serious about retirement planning. It's always a fixture on my desk and it's now in its third edition. So, I'm wondering if you can talk about the key sections that you wanted to update with this most recently released edition.
Well, thank you. And yeah, really the two big changes with the third edition. One is I really tried to simplify the writing. So, it's actually a 100 pages shorter than the second edition. I didn't remove any substantive content, but I I really focused on I would get criticisms that I was too wordy.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- retirement asset allocation
- sequence risk
- safe withdrawal rates
- annuities
- longevity planning
Watch the episode
Watch “The Long View: Wade Pfau - Higher Bond Yields Are a Plus for Retirees” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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The Long View, this episode and its artwork belong to Morningstar, Christine Benz - Director of Personal Finance and Retirement Planning, Ben Johnson - Head of Client Solutions, Amy Arnott - Portfolio Strategist. Octagon is not affiliated with the show; this page is an independent summary.
