39 Modern Retirement Income Planning Techniques

Retirement Optimization Plan

The discussion about the probability-based and safety-first schools of thought makes clear that retirement income planning is still a field in flux. The table below highlights this matter with a just a sampling of different retirement income planning techniques used in practice today. The table includes thirty-six possibilities, which I have attempted to differentiate in part by whether they have characteristics more similar to the probability-based or the safety-first philosophies.

Click here to download Wade’s ebook on retirement income strategies.

Many more strategies could be listed in the “Total Returns/Variable Spending” category, as it seems almost every financial services company is developing a retirement income strategy so as to not be left behind. Most of the excluded strategies would be difficult to distinguish from what is already on the list though.

Retirement Income Strategies


Total Returns
/ Constant Spending
Total Returns
/ Variable Spending
Time Segmentation
Safe Withdrawal Rates
(W. Bengen, Trinity Study, M. Kitces)
Fixed Percentage Withdrawals
(W. Bengen)
Age Banding
(S. Basu)
Safe Savings Rates
(W. Pfau, inStream)
Desired and Maximum Distribution
with Spending Rules (inStream)
Asset Dedication
(J. Burns; S. Huxley)
Cash Flow Management
(H. Evensky, D. Katz)
Decision Rules and Guardrails
(J. Guyton, W. Klinger)
Income Discovery
(M. Malhotra)
Rising Equity Glide path
(M. Kitces, W. Pfau)
Floor and Ceiling (W. Bengen) Wealth 2K (D. Macchia)
IRS RMD Rule (A. Webb, W. Sun)
PMT Formula (D. Blanchett, L. Frank, J. Mitchell, M. Waring, L. Siegel)
Target Percentage Adjustment
(D. Zolt)
Endowment Spending Policies
Actuarial Approach (K. Steiner)


Utility Maximization /
Dynamic Programming
Locked-In (Lifetime) Flooring At-Risk Flooring
Product Allocation and Efficient Frontiers
(M. Milevsky, P. Chen, Morningstar, M. Warshawsky, W. Pfau)
Bequest Value vs. Shortfall Value
(J. Tomlinson)
Dimensional Managed DC
(R. Merton, Z. Bodie)
R-MAP (M. Lonier)
Spending on the Planet Vulcan
(M. Milevsky and H. Huang)
Household Balance Sheet Management
(M. Zwecher, RIIA)
Lifecycle Finance (P. Samuelson, R. Merton, Z. Bodie, L. Kotlikoff) Modern Retirement Theory
(J. Branning, M. Ray Grubbs)
Funded Ratio Management
(Russell Investments)
Financial Guidance Theory
(H. Markowitz)
Safety-First Goals-Based Approach
(Z. Bodie, R. Toqqu)
(L. Kotlikoff)
TIPS & Deferred Income Annuities
(S. Gowri Shankar, S. Sexauer et al.)
Financial Engines (W. Sharpe, J. Scott, J. Watson) Floor-Leverage Rule (J. Scott, J. Watson)
Dynamically Adapting Asset Allocation and Withdrawal Rates
(J.P. Morgan)
Thrive Distribution
(C. Cloke)
Asset Allocation Calculator (G. Irlam) Liability Matching Portfolios
(W. Bernstein)

My aim is to simplify this list by narrowing down the options to some core attributes that can serve as best practices. I’ve studied all of these different approaches and have tried to draw what is best from each of them to build an overall framework to guide retirement income planning.

Click here to download Dr. Pfau’s Retirement Income Optimization Plan.

Ultimately, I believe the figure above provides a proper summary for how to approach the retirement income problem. This figure draws on attributes from the safety-first approach to consider the entire household balance sheet and to match assets and liabilities. It is most inspired by ideas found within Modern Retirement Theory, the Household Balance Sheet View, Funded Ratio Management, and Product Allocation.

At the same time, this approach is not overly regimented and can allow for both probability-based and safety-first plans, as the relative sizes of the reliable income and diversified portfolio boxes can be adjusted to create a plan that meets the psychological needs of the individual implementing it.


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