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  • Total Retirement Income Planning

    • One size doesn’t fit all:
    Rethinking retirement income strategies

    Why an investment-centered strategy doesn’t resonate with many clients
    Key insights from my white paper “Develop a personalized retirement strategy”
    Wade D. Pfau, Ph.D., CFA®, RICP®, Professor of Practice, The American College of Financial Services

    Download the full white paper (PDF)

    Creating a retirement income strategy isn’t a one-size-fits-all process. Every client has a unique view of what they want their retirement to look like and what they are (and aren’t) comfortable with sacrificing. Those preferences for the vision they most want to protect will dictate not only how much income they’ll need above and beyond Social Security but also which retirement income strategy is the best fit for them.

    A total return strategy (such as the 4% rule (PDF), for instance) is widely seen as the go-to option for retirement income planning. This strategy relies on the stock market’s risk premium to help retired clients achieve their financial goals. Because stocks are expected to outperform bonds over the long term, this potential for higher returns is used to give retirees the chance to support greater lifetime spending than a more conservative fixed-income portfolio would achieve. It's a solid strategy. But it may not be the right fit for every client — or even most clients.

    Middled-aged married couple discuss their personalized retirement income strategy in their living room. The husband shares insights from his tablet device with his wife.
    Only 1 in 3 retirees resonate with a total return strategy, according to recent research, footnote 1.

    In fact, our research uncovered that this kind of investment-centered strategy for retirement income resonated with only about 1 out of every 3 retirees.

    Other viable strategies use investments that deliver higher levels of guaranteed income. This research revealed that these options are more appealing to two-thirds of individuals when seeking to meet essential spending needs in retirement.

    Aligning preferences to a more personalized planning approach

    Alejandro Murguia and I2 identified a framework to fit individuals’ preferences with the following 4 retirement income strategies. (For more details on the strategies below, read my white paper, “Develop a personalized retirement strategy approach based on client preferences (PDF).”)

    A 4-quadrant chart that highlights the popularity of Murguia and Pfau’s 4 retirement income strategies in terms of client alignment. Each strategy is represented in its own quadrant and weighted on a Y- and X-axis. The Y-axis goes from commitment-oriented on the bottom to optionality-oriented at the top; the X-axis goes from safety-first on the left to probability-based on the right. Time segmentation, at the top-left, accounts for about 16% of clients; total return, at the top-right, accounts for about 35%; income protection, at the bottom-left, accounts for about 36%; and lastly, risk wrap, at the bottom-right, accounts for about 13%.

    1. Time segmentation strategy:
    This strategy meets the needs of clients who prefer safety first but also want growth potential. It involves creating short-term spending buckets with conservative investments and longer-term buckets for growth.

    2. Total return strategy:
    This investment-centered approach, like the 4% rule, relies on the stock market’s risk premium to achieve financial goals. It’s suitable for clients comfortable with market risks.

    3. Protected income strategy:
    This strategy appeals to clients who prefer predictable lifetime income and are comfortable with contractually protected sources to cover essential expenses. It helps manage the fear of outliving assets.

    4. Risk wrap strategy:
    Ideal for clients who seek growth but also need a structured income stream, this approach uses market-oriented investments with guardrails to limit downside risk.

    Building confidence and relationships through personalized planning

    Retirement income planning is a deeply personal process, shaped by each client’s unique goals, preferences and risk tolerance. By aligning those preferences with a more suitable strategy and investments, you can help clients feel more confident about their financial future — and build stronger relationships with them in the process.

    For more detailed insights, read my white paper,
    Develop a personalized retirement strategy approach based on client preferences. (PDF)

    [1] “Constructing a Retirement Income Framework for Defined Contribution Plans,” a working paper for Broadridge Retirement Income Consortium, Wade Pfau and Alejandro Murguia (2024).
    [2] “Selecting a Personalized Retirement Income Strategy: A Model Approach,” Alejandro Murguia and Wade Pfau, Retirement Management Journal, Vol. 10, No. 1 (2021), pages 46-58.

    Guarantees and protections are subject to the claims-paying ability of Nationwide Life Insurance Company.