This post is a follow-up to our posts of November 8, 2019, “Use the
Actuarial Approach to Implement your ‘Safety-First’ Retirement Income
Plan” and July 18, 2017, “McLean Asset Management Endorses Basic
Actuarial Principles for Personal Financial Planning.” Inspiration for
this post is Dr. Wade Pfau’s April 3, 2020 Forbes article, “Is Buying an Annuity in a Bear Market a Good Idea?”
Dr.
Pfau is a highly respected professor of Retirement Income at The
American College and a Principal and Director for McLean Asset
Management. His recent book is entitled Safety-First Retirement Planning.
In his Forbes article (which is an excerpt from his book), he refers to
the concept of a “funded ratio” which is determined by dividing an
individual’s (or household’s) assets by their liabilities. As discussed
in our post of July 18, the assets and liabilities anticipated in Dr.
Pfau’s and Mclean Asset Management’s funded ratio are very similar
conceptually to the asset and liability present values we use in our Actuarial Budget Calculator workbooks.
As indicated in our post of November 8, 2019, you can use our workbooks and our Recommended Financial Planning Process to implement your own Safety-First Investment Strategy utilizing a Floor Portfolio of low risk investments intended to fund your Essential Expenses in retirement.
Dr.
Pfau very nicely encapsulates the objective of a Safety-First
Investment Strategy when he says, “After all, the goal of true
retirement income planning is not to earn a high investment return, but
rather to actually be able to fund all of their financial goals for
retirement, including have enough income to cover essential monthly
expenses in retirement.”
Take Away
It is
nice to see esteemed financial academics like Drs. Pfau and Finke (in
our previous post) recognizing the benefits of using basic actuarial
principles like the actuarial balance sheet and present values in
personal financial planning. If you like the Actuarial Approach
presented in this website, please share the site with your friends. If
you have suggestions for improvement of the site or the workbooks,
please share them with us.
