Academic Researcher Wade Pfau: “Naturally, I Am Finding that Valuation-Informed Indexing Can Allow You to Reach a Wealth Target With a Lower Savings Rate, Use a Higher Withdrawal Rate, and Also Have a Lower ‘Safe” Savings Rate, Than a Fixed Allocation”

Yesterday’s blog entry reported on an e-mail that I sent to Academic Researcher Wade Pfau on December 2, 2011. Wade responded the next day.

He thanked me for my encouraging words and said: “The idea about PE10 going up being different than P/E10 going down does make sense.”

Wade told me about a book titled “How to Profit From Formula Plans in the Stock Market,” which was published in 1961.  He said that he downloaded it at a time when a free download was available but that there was no longer such a download available. He said that it talks about a “halfway rule,” which takes advantage of this concept.

The e-mai stated: “I had a productive evening.  Bengen’s discussion about changing asset allocation being the next step got me moving to combine my safe savings rates program with my valuation-based asset allocation program.  (do you remember in February when DRiP Guy complained about using a fixed allocation in my safe savings rate paper?  That is what I fixed now)  Naturally, I am finding that VII can allow you to reach a wealth target with a lower savings rate, use a higher withdrawal rate, and also have a lower “safe” savings rate, than a fixed allocation. The only exception occurs a little bit with the 1990s stock market boom, as you saw earlier with my blog entries about the rolling periods.  I’m attaching 3 figures I made about this tonight. This here is probably enough to write an article for Journal of Financial Planning.  I’m thinking about this now.

The three figures referred to by Pfau appear below:

Wade Pfau -- Valuation-Informed Retirement Planning, Figure One

Wade Pfau, Valuation-Informed Retirement Planning -- Figure Two


Wade Pfau, Valuation-Informed Retirement Planning -- Figure Three


  1. canyon wanderer says

    figure 1 appears to show that as long as your withdrawal rate is at or below 4%, you shouldn’t run out of money in retirement.

  2. Rob says

    It does not, Canyon.

    It shows that the valuation level that applies on the day your retirement begins determines what withdrawal rate will work over the course of your retirement.

    At the top of the bubble, retirement plans using a 4 percent withdrawal had only a 30 percent chance of surviving 30 years.

    We have known about the errors in the Old School studies for 10 years. The only reason this is not widely known today is that the Buy-and-Holders have made use of death threats and board bannings and thousands of acts of defamation to keep this information from the millions of middle-class investors who need to know it.

    As you know, I deplore these tactics. Until the Greaney Goons threatened to get Wade fired from his job for sharing his honest view that the discredited retirement studies need to be corrected, Wade was willing to voice at least limited criticism of them as well.

    Please take good care, my abusive-posting friend.


  3. canyon wanderer says

    um, i was only interested in withdrawal rates.

    which figure shows that 4% was only good for 30 of the cases?

    surely you have backup for these ‘death threats’ you mention. that’s pretty serious business. have you called the authorities? you should.

  4. Rob says

    i was only interested in withdrawal rates.

    It’s not possible to discuss safe withdrawal rates without discussing the 10-year-long Campaign of Terror against our board and blog communities, Canyon. We’ve known since the morning of May 13, 2002, that the Old School SWR studies are in error. Yet many aspiring retirees continue to use these discredited studies to this day. Why? Because they haven’t been corrected. Why haven’t they been corrected? Because the Lindauerheads and the Greaney Goons have used intimidation tactics to keep us from spreading the word to the millions of middle-class investors (like you!) who need to be warned of the danger of making use of these “studies.”

    Do you seriously think that in the Year 2012 you would be asking about studies that were discredited in 2002 if it were not for the Campaign of Terror? Calculating the SWR is easy. It’s overcoming the emotional pain felt by those who got the numbers wrong and thereby caused millions of people to put together high-risk retirement plans that is the hard piece of work before us.

    To say that you want to know the number without having to deal with the emotions that are stirred up when the number is reported accurately is like saying that you want to know how to invest in stocks effectively without learning about investor psychology. That was the core mistake of the Buy-and-Holders. That’s impossible.

    Investor psychology affects stock prices. And stock prices determine whether stocks offer a good long-term value proposition or not. Investing is not primarily a numbers game. Investing is primarily an emotions game. All our efforts to pretend otherwise can never change this reality.

    I wish you all good things.


  5. Rob says

    have you called the authorities?

    I’ve called the authorities, my long-time abusive-posting friend. And I’ve encouraged all others — both “experts” and ordinary investors — concerned about the Buy-and-Hold Crisis to call the authorities. There is no one on Planet Earth who has done more to bring the Campaign of Terror to an end. There is no one in a close second place.

    Please take good care.


  6. Evidence Based Investing says

    It’s not possible to discuss safe withdrawal rates without discussing the 10-year-long Campaign of Terror against our board and blog communities, Canyon.

    It is not possible for you to discuss safe withdrawal rates without you also bringing up your 10-year-long Campaign of Terror against our board and blog communities.

    However others manage to do it everyday.

  7. Rob says

    However others manage to do it everyday.

    Not honestly they don’t, Evidence.

    They say “oh, there’s no such thing as a safe withdrawal rate.”

    Or “oh, the safe withdrawal rate is just a rule of thumb.”

    Or “oh, the studies aren’t off by all that much.”

    Or “oh, the studies are wrong but they don’t need to be corrected.”

    Or “oh, no one has a crystal ball, you can never know for sure.”

    The mumbo jumbo doesn’t impress me. I will post honestly or I will post not. I will report accurately and honestly what the academic research says and what the historical data says or I will have nothing to say on the subject.

    It’s not my particular cup of tea, Evidence.

    I would be truly grateful if you would try to find somebody else.

    No can do.


  8. canyon wanderer says

    ok, now you are losing me.

    campaign of terror? greaney goons? lauderheads?

    and what errors are you talking about? please specify.

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