Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
This is a cross-post from Retirement Investing: 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.
Print the post Back To Top
No. of Recommendations: 0
Aren't returns posted net of fees? If that is the case, then why would you bother putting fees into the equation?

IP
Print the post Back To Top
No. of Recommendations: 0
I guess I'll go for a grand slam. I posted a similar message over at Morningstar. Mr. Pfau responded, then got me banned from the Board. He claims that he never published an article with the 1% fee included as an underlying assumption. Well, I certainly read one, and so did a lot of other folks on TMF boards, because we had a discussion about it at the time. Others even quoted directly from Mr. Pfau's article. Of course, I won't get a chance to mention this at Morningstar, and I assume Mr. Pfau will get me banned here as well. So be it.
Print the post Back To Top
No. of Recommendations: 0
Well, I conditionally retract one thing. It's unclear whether I've been banned or not at Morningstar. They show that I can log-in, but then I can't post a reply, with a screen momentarily flashing that my account has been banned. Bottom line: I don't know if Mr. Ffau had me banned or not, not that I really care.
Print the post Back To Top
No. of Recommendations: 1
Yep, Morningstar is now posting that I've been banned from the Boards. Too bad, so sad. They must also support Obama's way of dealing with dissent.
Print the post Back To Top
No. of Recommendations: 2
You posted the same messages on Retired Fools, so I conclude your goal has more to do with your political message than the professor.
Print the post Back To Top
No. of Recommendations: 1
You posted the same messages on Retired Fools, so I conclude your goal has more to do with your political message than the professor.

Who put a burr under your saddle. It really is beyond dispute that Obama retaliates again anyone who goes against him. The facts are the facts. It's got nothing to do with politics.
Print the post Back To Top
No. of Recommendations: 3
You posted the same messages on Retired Fools, so I conclude your goal has more to do with your political message than the professor.

Who put a burr under your saddle. It really is beyond dispute that Obama retaliates again anyone who goes against him. The facts are the facts. It's got nothing to do with politics.


Like appointing Hilary Clinton Secretary of State? Well, that's quite a punishment. Obama had nothing to do with the Professor who may or may not have had you banned. Morningstar may not have cared for your off-topic posts--I don't know.
Print the post Back To Top
No. of Recommendations: 3
Karen, there is really nothing you can say to the delusional to change their mind. Some battles are just not worth fighting.

I got a call from the RNC to ask me to sign up for membership today. Half way through a rant on this poor person about considering membership when they stop giving me idiots to vote for, I stopped myself and wished her a good day, telling her this argument was pointless. Bizarrely she was continuing the argument as I hung up. Her time would have been better spent trying to recruit others than arguing with me, just as your time would be better spent just clicking by to whatever post you are after.

IP,
considering herself an independent, but living in a state where you don't get to vote in the primaries if you don't declare yourself R or D
Print the post Back To Top
No. of Recommendations: 0
Karen, there is really nothing you can say to the delusional to change their mind. Some battles are just not worth fighting.


Thanks, IP. :)
Print the post Back To Top
No. of Recommendations: 2
ResN writes,

Yep, Morningstar is now posting that I've been banned from the Boards. Too bad, so sad. They must also support Obama's way of dealing with dissent.

While I agree with your comments regarding Wade Pfau and including a 1% fee in his SWR analysis without adequate disclosure, I doubt Obama is in league with Pfau.

Heck, Obama's recent MyRA proposal has fees much lower than Vanguard's (MyRA 2.7 basis points, Vanguard average 19 basis points.)

http://money.cnn.com/2014/01/29/retirement/myra-accounts/

intercst
Print the post Back To Top
No. of Recommendations: 1
While I agree with your comments regarding Wade Pfau and including a 1% fee in his SWR analysis without adequate disclosure, I doubt Obama is in league with Pfau.

Heck, Obama's recent MyRA proposal has fees much lower than Vanguard's (MyRA 2.7 basis points, Vanguard average 19 basis points.)


It might shock you to know that I think Obama is right with his proposal. Far too many people don't or won't save for retirement because they don't trust "the system." On the other hand, they just might go for government bonds, which are as safe as safe can be these days. I also support Obama's idea to severely restrict how much the wealthy can shelter from current taxation by using tax-deferred plans. The truly wealthy don't need tax-payer funded subsidies, and they should not get them. We have limited resources, and they should be used for truly worthwhile causes or folks who truly are in need of help. See, we're not really all that far apart. We differ on some of the details, but not too much on the basic ideas.
Print the post Back To Top
No. of Recommendations: 0
While I agree with your comments regarding Wade Pfau and including a 1% fee in his SWR analysis without adequate disclosure, I doubt Obama is in league with Pfau.

By the way, Pfau denied having ever referred in any way to fees or expenses in any of his articles or studies. He flat out denied ever suggesting that 1% was a reasonable amount for most folks, and that he included the 1% in his calculations for his new and improved SWR. Now, unless I'm truly going soft in the head, I seem to recall that his study specifically stated that all calculations of survival included a 1% annual investment expense, and that 1% is a reasonable amount for most folks because most folks need help with investing (what I called over at Morningstar as shilling for the financial services industry). Am I wrong about this?
Print the post Back To Top
No. of Recommendations: 3
ResN writes,


By the way, Pfau denied having ever referred in any way to fees or expenses in any of his articles or studies. He flat out denied ever suggesting that 1% was a reasonable amount for most folks, and that he included the 1% in his calculations for his new and improved SWR.

</snip>


Here's the subject report, authored by Dr. Pfau and published by Morningstar no less, where he assumes a 1% fee in his retirement withdrawal study. (See Page 9)

http://corporate.morningstar.com/us/documents/targetmaturity...

Each scenario in the analysis is based on a 10,000-run Monte Carlo simulation. Taxes and Required Minimum Distributions (RMDs) from the portfolio are ignored. The analysis assumes a 1.0% fee, or negative alpha, that is deducted from the portfolio value annually. This fee is included to account for unavoidable retirement portfolio expenses paid by the investor (e.g., mutual fund fees, advisor fees, account fees, etc.) for investment management.

</snip>


It seems we can now add "documented history as a liar" to his CV.

intercst
Print the post Back To Top