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The great Prof Pfau has been headline seeking for some time now, but I really would like to get to the bottom of his current media celebrity. He is loudly and wildly proclaiming the demise of the 4% rule of thumb. When I read one of his first articles on this subject some months ago, he had a footnote in the article that stated that all of his calculations were based on the assumption of an 1% annual fee on total assets as representing the cost for financial services and fund expenses. The original 4% study included no such assumption. Bottom line: Pfau now is starting from a point that has annual returns and total annual portfolio values reduced by a 1% annual fee, while in reality many investors and retirees have fees that are 90% or more less than Pfau's 1%. For example, I invest with Vanguard via Admiral funds. My equities are in either SP500 or Total Market, both of which have a .05% annual fee. I'm not great at math, but I think that makes my annual equity fees around 99% less than what Pfau is using. My bond fund fees at Vanguard around .1%, which is still around 99% less than the number Pfau is using. Now, I'm not a great investor, but anyone can invest with Vanguard, and Vanguard produces good (if not excellent) returns annually and over time relative to everyone else in the universe. So, why is Pfau using what he must know to be a ridiculous expense ratio? Yes, it produces great headlines, gets him talking head gigs on TV, and makes for a longer CV for his academic position. But, what it really does is scare the hell out of everyone approaching retirement, so that they run headlong into the grasp of so-called financial experts who claim to be able to save your retirement. Of course, these same financial experts will annually charge at least 1%, if not more, thus insuring that what Pfau says in fact comes to pass. I wonder how much money Pfau makes from the financial services industry via speaking fees and grants? Also of interest is the fact that I haven't been able to find the original footnote about the 1% annual fee in any of his more recent articles. In fact, his more recent articles don't seem to say anything at all about fees. I wonder why? It would be nice in intercst would comment on whether I've got my facts correct here, since unlike Pfau, I don't claim to be an expert at anything.
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