Is Buying an Annuity in a Zero Interest Rate Environment a Good Idea?

By Wade Pfau, Ph.D., CFA

The Federal Reserve’s decision to cut its benchmark federal funds rate from 1% to a range of 0% raises significant questions for those reassessing their retirement nest egg—a common occurrence following a dramatic selloff in equities according to research conducted by Indiana University’s Alessandro Previtero —and the value of annuities in providing guaranteed lifetime income.

Is Buying an Annuity in a Bear Market a Good Idea?

By Wade Pfau, Ph.D., CFA

As the stock market experienced unprecedented growth over the past eleven years, many people were naturally less interested in the lifetime income options from pensions or annuities. Who wouldn’t rather have all the assets today so they can invest them with the idea of earning high returns?

Adjustments For A Conservative Return Assumption

By Wade Pfau, Ph.D., CFA

Consider three scenarios: An individual investing a lump-sum amount for thirty yearsAn individual saving a fixed percentage of a constant inflation-adjusted salary at the end of each year over a thirty-year accumulation periodAn individual withdrawing the maximum sustainable constant inflation-adjusted amount from…

A Guide to a Conservative Return Assumption

By Wade Pfau, Ph.D., CFA

A simple approach for building a financial plan is to decide on a rate of return for the investment portfolio and to plug that value into a spreadsheet to represent assumed asset growth. Historical data may be used to calculate historical average…

Planning For The Future – What About Bond Yields?

By Wade Pfau, Ph.D., CFA

Adjustments for Current Bond Yields An important consideration is that current interest rates are lower than the historical averages. The historical average return is not relevant for someone seeking to estimate future market returns from today’s starting point. The general problem with…

What To Do When Markets Plummet – Investor Behavior Gap

By Wade Pfau, Ph.D., CFA

Another concern is whether investors are disciplined enough to stay the course with the investment strategy in order to earn the underlying index market returns. Studies on retirement spending from investment portfolios typically assume that retirees are rational investors who rebalance right…

Making Your Investments Work For You: Things To Consider

By Wade Pfau, Ph.D., CFA

Inflation We must remove inflation so the numbers allow for a better understanding of purchasing power growth. Real returns will be less because they preserve the purchasing power of wealth over time. Providing the discussion in terms of real returns allows us…

How Much Can Retirees Spend On March 11, 2020? It May Not Be What You Think

By Wade Pfau, Ph.D., CFA

Turbulent market volatility and declining interest rates are leaving many people wondering about the viability of their retirement plans. Given where markets are today, will you have enough to meet your retirement spending goals? Attention often turns to the 4% rule, which…

How Much Should We Depend On The Stock Market?

By Wade Pfau, Ph.D., CFA

Simple analyses, which look to historical returns as estimates for what retirees should expect in the future, tend to provide an incomplete picture that may overstate the potential for stocks relative to other strategies. We will investigate some of the adjustments that…

Unpacking Today’s Market Returns

By Bob French, CFA

Today, March 9th, 2020, was a bad day for the financial markets. There are four main elements to this story that I want to pick apart…

Inflation, Deflation, Confiscation & Devastation- The Four Horsemen Of Risk

By Wade Pfau, Ph.D., CFA

Noted financial advisor and historian William Bernstein makes a compelling case for stocks in his e-book Deep Risk: How History Informs Portfolio Design. In the introduction, Bernstein begins by offering an operational definition of risk. Risk is the size of real capital…

What To Make of Market Volatility

By Alex Murguia, PhD

In recent days, the significant market decline has resulted in renewed anxiety for many of you (I know this is blatantly obvious but stick with us). While it may be difficult to remain calm during a substantial market decline, it is important…