Use the Actuarial Approach to Implement Your “Safety-First” Retirement Income Plan

Several of our readers have asked us to compare:

• the retirement planning strategy discussed in Dr. Wade Pfau’s recent Forbes article and his new book, “Safety-First Retirement Planning:  An Integrated Approach for a Worry-Free Retirement” with
• the seven-step planning process outlined in our post of August 25, 2019, which is designed to help users determine the amount of assets necessary to fund essential and discretionary expenses (floor and upside portfolios) in addition to determining recurring and non-recurring spending budget data points.

The short answer to the question of how these approaches compare is that they are very similar.  The key advantage of seven-step process utilizing the Actuarial Approach is that we actually provide the tools (formulas, spreadsheets and processes) so that DIYers (or financial advisors) can easily implement a Safety-First (or floor and upside portfolio) retirement income strategy.

Perhaps the best advice contained in Dr. Pfau’s book is in the first chapter, where he describes the eight elements of his “Retirement Researcher Manifesto.”  This retirement planning manifesto is also set forth in his 2016 Advisor Perspective article, Eight Core Ideas to Guide Retirement Income Planning.  We noted in our post of February 24, 2016 that the Actuarial Approach we advocate was consistent with each of the key retirement planning elements set forth in Dr. Pfau’s article.

We agree with Dr. Pfau that “The challenge in building an effective retirement income plan is to use available income tools and tactics in a strategic manner to meet the financial goals of retirement while also managing the risks confronting those goals”.  We believe the seven-step process advocated in our post of August 25 is a powerful tool to help you address this challenge.