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How Much Can I Spend in Retirement?: A Guide to Investment-Based Retirement Income Strategies
Deciding how much to spend from your investment portfolio in retirement is an important complicated task. This book guides you through the process of determining a reasonable spending rate that will strike the balance between enjoying your early retirement years while preserving enough to be comfortable later in retirement.
How much can you spend in retirement? Naturally, this is an essential question for those approaching this important life transition. If you wish to retire one day, you are increasingly responsible for figuring out how to save during your working years and convert your savings into sustainable income for an ever-lengthening number of retirement years. The nature of risk also changes in retirement, as the lifestyle of retirees become more vulnerable to the impacts of market volatility, unknown longevity, and spending shocks. Retirees have one opportunity to build a successful plan. It is not an easy task, but it is manageable and I will explain how to do it.
I walk you through the findings of a large body of financial planning research regarding sustainable spending from investment portfolios in the face of a variety of retirement risks. That body of research tends to begin with the 4 percent rule of thumb for retirement spending. I explain how and why it was developed, what it means, and when it may or may not be appropriate for you.
I have reservations about the 4 percent rule. It may be too aggressive for current retirees for reasons including increasing longevity, historically low interest rates, high stock market valuations, the impact of the international experience with the 4 percent rule, the need to maintain a rather aggressive asset allocation, and because the 4 percent rule assumes that investors do not pay any fees or otherwise underperform the markets.
Other factors suggest that sustainable spending may be higher. Reasons include that actual retirees may tend to reduce their spending with age, that they build more diversified portfolios than used in the basic research studies, that real-world retirees may be willing to adjust spending for realized portfolio performance, and that some retirees may have the capacity and tolerance to accept higher portfolio failure probabilities because they have other sources of reliable income from outside their portfolios.
Other matters you will learn about is how to analyze a variety of variable spending strategies and how to create a bucketing strategy that uses bonds to support short-term spending needs and uses stocks and other growth assets to support longer-term spending goals.
Retirees need to weigh the consequences between spending too little and spending too much—that is, being too frugal or running out of assets. This book is about implementing what I call the “probability-based” school of thought for retirement planning. It is especially relevant for people who plan to fund their retirements using an investment portfolio and those who are hesitant about using annuities or other insurance products. For those considering annuities, I suggest my book, Safety-First Retirement Planning, which is also in The Retirement Researcher’s Guide Series. For now, we have plenty to discuss about investing for retirement.
How did I come to write this book? After completing my Ph.D. in Economics from Princeton University with a dissertation about Social Security reform, I become an economics professor who studied the pension systems in different countries.
How much can you spend in retirement? Naturally, this is an essential question for those approaching this important life transition. If you wish to retire one day, you are increasingly responsible for figuring out how to save during your working years and convert your savings into sustainable income for an ever-lengthening number of retirement years. The nature of risk also changes in retirement, as the lifestyle of retirees become more vulnerable to the impacts of market volatility, unknown longevity, and spending shocks. Retirees have one opportunity to build a successful plan. It is not an easy task, but it is manageable and I will explain how to do it.
I walk you through the findings of a large body of financial planning research regarding sustainable spending from investment portfolios in the face of a variety of retirement risks. That body of research tends to begin with the 4 percent rule of thumb for retirement spending. I explain how and why it was developed, what it means, and when it may or may not be appropriate for you.
I have reservations about the 4 percent rule. It may be too aggressive for current retirees for reasons including increasing longevity, historically low interest rates, high stock market valuations, the impact of the international experience with the 4 percent rule, the need to maintain a rather aggressive asset allocation, and because the 4 percent rule assumes that investors do not pay any fees or otherwise underperform the markets.
Other factors suggest that sustainable spending may be higher. Reasons include that actual retirees may tend to reduce their spending with age, that they build more diversified portfolios than used in the basic research studies, that real-world retirees may be willing to adjust spending for realized portfolio performance, and that some retirees may have the capacity and tolerance to accept higher portfolio failure probabilities because they have other sources of reliable income from outside their portfolios.
Other matters you will learn about is how to analyze a variety of variable spending strategies and how to create a bucketing strategy that uses bonds to support short-term spending needs and uses stocks and other growth assets to support longer-term spending goals.
Retirees need to weigh the consequences between spending too little and spending too much—that is, being too frugal or running out of assets. This book is about implementing what I call the “probability-based” school of thought for retirement planning. It is especially relevant for people who plan to fund their retirements using an investment portfolio and those who are hesitant about using annuities or other insurance products. For those considering annuities, I suggest my book, Safety-First Retirement Planning, which is also in The Retirement Researcher’s Guide Series. For now, we have plenty to discuss about investing for retirement.
How did I come to write this book? After completing my Ph.D. in Economics from Princeton University with a dissertation about Social Security reform, I become an economics professor who studied the pension systems in different countries.
364 pages, Kindle Edition
Published October 17, 2017
277 people are currently reading
255 people want to read
About the author
Wade Pfau
7 books21 followersWADE D. PFAU
PhD, CFA®
Professor of Retirement Income
RICP® Program Director
Co-Director of the New York Life Center for Retirement Income
Areas of Expertise:
Annuities, Financial Planning, Investments, Life Insurance Planning, Life Insurance Practices, Portfolio Management, Retirement Planning
BA, University of Iowa
BS, University of Iowa
MA, Princeton University
PhD, Princeton University
PhD, CFA®
Professor of Retirement Income
RICP® Program Director
Co-Director of the New York Life Center for Retirement Income
Areas of Expertise:
Annuities, Financial Planning, Investments, Life Insurance Planning, Life Insurance Practices, Portfolio Management, Retirement Planning
BA, University of Iowa
BS, University of Iowa
MA, Princeton University
PhD, Princeton University
Ratings & Reviews
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Displaying 1 - 15 of 15 reviews
April 14, 2022
I’d call this a situational review of Wade Pfau’s wonderfully insightful book on different schemes for milking your investments during your golden years of retirement. Here’s my situation – I’ve planned for an early retirement for most of my career, and found myself pretty well positioned for it financially when my employer provided that last not-so-gentle nudge leaving me unemployed during the pandemic. Thank you sir, may I have another. But while my buckets of investments are roughly right, those buckets are disorganized. This, on occasion, leads me to thoughts of personal financial peril and thoughts of ruin. It was during one of these low times when I found Pfau’s book and dived in.
First, it should be noted that this is often categorized as a business book, or for those with more refined classifications, as a personal finance or retirement book. I am here to tell you that in my reading it was better classified as horror. Pfau follows the typical horror book method. He begins by laying out a typical retirement financial planning scenario, one that I felt was very familiar to my own. He then starts knocking away at the foundations of that plan, pointing out how unrealistic this part was, and that part, and how history was up for interpretation, and by the end of his introductory sections, I knew that I had been horribly mistaken to think for one minute that I could ever stop working for “the man”. I found myself reading this section faster and faster, not wanting to believe the often simple math and the conservative takes on historical market numbers and trends. My blood pressure and heart rate rose, despite good drugs to counter. By the middle of the book, the story took on a more academic feel, where Pfau devoted chapters to working on different withdrawal schemes. There are a lot of these, and not all ones that I was overly familiar with from other books and articles I had read. The author defined his topics well and provided insightful commentary at a level deeper than most personal finance books. Reading these sections was when, like in a good horror story, I started to see seeds of hope. By understanding the attributes and the outcomes of these different withdrawal schemes, you could see that there was a way to limit your risks of failure and to limit the negative impacts to your life along the way. I could suddenly see a path that led, strangely, right to how I always thought I would handle my retirement investment withdrawals, and they made sense. So while starting like a horror book, it ended up more positive, like a self help tome. I can only hope that Pfau didn’t plan on this coming across as a horror book, where the foolish bit player thinks he’s eliminated the evil, only to be surprised by that evil’s resurgence hinted at in the conclusion. I didn’t get the Stephen King vibe at the end here, so I believe I am safe. Knock wood.
I should also add here that I see this as being a personal take on the book. I don’t expect a majority of readers would feel the same about this book, as they probably haven’t had the same kinds of long-standing financial thought experiments on this topic as I’ve had, often driven by overheard snippets of commentary from CNBC playing in the background. I’ll admit I can be obsessive. But I found Pfau’s book a good balm for my self-inflicted financial trauma. And once I work up enough psychological wellness on this topic, I’ll take on another of Pfau’s books with the hopes that it comes across as just a good finance book. Five stars for me, your mileage may vary.
First, it should be noted that this is often categorized as a business book, or for those with more refined classifications, as a personal finance or retirement book. I am here to tell you that in my reading it was better classified as horror. Pfau follows the typical horror book method. He begins by laying out a typical retirement financial planning scenario, one that I felt was very familiar to my own. He then starts knocking away at the foundations of that plan, pointing out how unrealistic this part was, and that part, and how history was up for interpretation, and by the end of his introductory sections, I knew that I had been horribly mistaken to think for one minute that I could ever stop working for “the man”. I found myself reading this section faster and faster, not wanting to believe the often simple math and the conservative takes on historical market numbers and trends. My blood pressure and heart rate rose, despite good drugs to counter. By the middle of the book, the story took on a more academic feel, where Pfau devoted chapters to working on different withdrawal schemes. There are a lot of these, and not all ones that I was overly familiar with from other books and articles I had read. The author defined his topics well and provided insightful commentary at a level deeper than most personal finance books. Reading these sections was when, like in a good horror story, I started to see seeds of hope. By understanding the attributes and the outcomes of these different withdrawal schemes, you could see that there was a way to limit your risks of failure and to limit the negative impacts to your life along the way. I could suddenly see a path that led, strangely, right to how I always thought I would handle my retirement investment withdrawals, and they made sense. So while starting like a horror book, it ended up more positive, like a self help tome. I can only hope that Pfau didn’t plan on this coming across as a horror book, where the foolish bit player thinks he’s eliminated the evil, only to be surprised by that evil’s resurgence hinted at in the conclusion. I didn’t get the Stephen King vibe at the end here, so I believe I am safe. Knock wood.
I should also add here that I see this as being a personal take on the book. I don’t expect a majority of readers would feel the same about this book, as they probably haven’t had the same kinds of long-standing financial thought experiments on this topic as I’ve had, often driven by overheard snippets of commentary from CNBC playing in the background. I’ll admit I can be obsessive. But I found Pfau’s book a good balm for my self-inflicted financial trauma. And once I work up enough psychological wellness on this topic, I’ll take on another of Pfau’s books with the hopes that it comes across as just a good finance book. Five stars for me, your mileage may vary.
May 27, 2018
An excellent deep-dive into the "probability-based" school of retirement income. It's helpful to have all of Pfau's thinking on this subject in one volume. I've read much of this content before in his published papers and on his Retirement Researcher website, but in particular, the sections on bonds, duration-matching, and time-segmentation analysis stretched my thinking on these topics.
June 24, 2020
Dr. Pfau created a wonderful guide that explores many of the different factors that influence how much income a household can ”count on” from their investment portfolio. Some readers may be upset if they were expecting a step-by-step method to use for their unique circumstances, as this book does not provide it. After discussing the various factors that influence retirement income, Dr. Pfau gives a vague description of the process he uses to tie them all together to determine how much retirement income a retiree may expect from their portfolio. Even if a retirement income number were provided, the book provides amble evidence that you will likely have to adjust the number over time either because you can spend more or less than what you estimate you can spend from your portfolio at the beginning of your retirement.
As a professional, I appreciated the academic nature of this book, but it may not be for everyone. With that said if you are interested in the following topics, you will find value in this book.
- 4% rule and whether it is applicable to today’s retirees (book makes the case it’s probably not)
- Dynamic asset allocations
- variable spending strategies
- bond ladders
- total return versus time segmentation
- sequence of return risk for pre-retirees/retirees
- differences in designing an investment portfolio for retirement versus accumulating wealth.
Gave me a lot to think about as well as many references for further reading.
As a professional, I appreciated the academic nature of this book, but it may not be for everyone. With that said if you are interested in the following topics, you will find value in this book.
- 4% rule and whether it is applicable to today’s retirees (book makes the case it’s probably not)
- Dynamic asset allocations
- variable spending strategies
- bond ladders
- total return versus time segmentation
- sequence of return risk for pre-retirees/retirees
- differences in designing an investment portfolio for retirement versus accumulating wealth.
Gave me a lot to think about as well as many references for further reading.
November 24, 2018
Dr. Wade Pfau has written a book for those who have saved and invested for years and now wonder about spending their nest egg. This is ideal for retirement planners, CFPs, ChFCs, CPAs, etc. For the lay person who is not a financial professional Pfau's book will be a tough slog with analytical case studies and charts & graphs. It begins with a clear statement of retirement risks so you will know what you are facing in retirement. It ends with a section on an unpleasant but critical topic - cognitive decline. Reading this book is worth the effort.
March 7, 2019
Good Study but hard to understand
This book is for people who are much more sophisticated than the average investor. You must really be on the ball to understand this book. It has great stuff but a bunch of it is dry for sure.
This book is for people who are much more sophisticated than the average investor. You must really be on the ball to understand this book. It has great stuff but a bunch of it is dry for sure.
April 4, 2025
This book provides a solid overview of various strategies for sustainable retirement spending out of a portfolio of investment assets. The author starts with Bengen's classic 4% rule, and then covers a number of other strategies that might be considered to improve on its results. He describes the theories of each strategy, explains examples, and provides numerous graphs of their results across Monte Carlo simulations. It becomes a bit repetitive, and takes a fair amount of work to follow, especially the chapter on bond ladders. I was annoyed that the only bond-ladder scenarios he examined involved 10-year ladders. Ultimately, I didn't get what I was hoping for, which was real-world tactics for adjusting retirement spending from year-to-year based on markets and porfolio performance. The book ends with a fairly low-key pitch for the author's investment management services.
June 29, 2022
This is a good book for investors who want to go beyond the "4% rule." Wade reviews Bengen's paper and the Trinity study. 30 year portfolio survival isn't necessarily the best way to assess a strategy. Asset allocation for accumulation using modern portfolio theory isn't designed for withdrawals in retirement. He explores different withdrawal strategies including fixed percentage, an annuity approach, and a RMD like withdrawals. Higher spending may improve quality of life but this may be ok if there are other income streams. There are a lot of details and examples. Highly recommended but not as a first investing book to read.
February 20, 2019
Invaluable Retirement Income and Planning information
A comprehensive, professional review of the variables impacting retirement income and investment decision-making. A must read for all financial professionals!
A comprehensive, professional review of the variables impacting retirement income and investment decision-making. A must read for all financial professionals!
July 23, 2019
This is a very academic book. I learned a lot. I was starting from a strong base of understanding in this topic and it was still very dense. I’d say it is well written for the type of book it is. I wish the graphs had been printed in color.
September 28, 2019
Technical, dry, thought provoking in a few areas. Not a good first book on the subject for people looking for an introduction.
October 31, 2019
Fantastic
Stats and research to back up a tremendous amount of ideas. Will be a re-read in the future in order to fully appreciate the depth.
Stats and research to back up a tremendous amount of ideas. Will be a re-read in the future in order to fully appreciate the depth.
January 15, 2022
This book was too technical for me. I did not get far into it, before I gave up and stopped reading.
October 22, 2025
The first half is the best book about retirement finances that I've ever read, no matter where you live. The second half is too US-centric and not as interesting.
June 1, 2024
Excellent! A revelation for me. It is dense and somewhat technical.
June 24, 2023
Simulando con series de Montecarlo resulta que con un 90% de seguridad debo comprarme un Panamera... Este Pfau se las gasta muy fuerte.
Displaying 1 - 15 of 15 reviews