What’s your client’s retirement income style?

In December 2021, Iwrote a favorable review ofWade Pfau’s "Retirement Planning Guidebook" published byRetirement Resources. Pfau has produced a second edition of his book, which addresses all the major regulations passed since then.

Many experts agree this book is the most comprehensive and best-written personal finance book ever written. I agree. If you are approaching retirement and need guidance regarding any of the most important aspects of retirement, you should obtain this book. This book is must reading not only for prospective retirees but for all financial planners aswell.

The guide discusses four general retirement income styles. You can determine your style, before obtaining the book, by filling out a questionnaire. You’ll get input that will allowyou to develop a strategy to meet your retirement objectives. You can visitwww.risaprofile.com/guidebook to take the questionnaire and obtain your profile without cost or any future obligation.

The book covers investments, withdrawal options, annuities, Social Security, Medicare, health insurance, long-term care options, housing decisions, tax planning and estate planning. In every one of these subjects, Pfau goes into significant detail, with reliable sources, to help you make critical decisions with a full understanding of all options, knowing the pros and cons of each.

One ofmy favorite parts of the book is the section on housing decisions. Pfau has developed expertise regarding reverse mortgages, and has covered the advantages in this book, in depth that no other author has tomy knowledge. Not everyone in retirementwants to remain in their home on a long-term basis. But for those whodo, this section is must reading. (Pfau has also written a separate comprehensive book, "ReverseMortgages: Howto UseReverseMortgages to SecureYour Retirement," which I have reviewed favorably.)

Pfau explains clearly the differences betweenHELOCandHECM. With a HELOC, a homeowner borrows money using the home as collateral, generally with lowstart-up fees, and is required to repay the loan in a relatively short time frame. With aHECM, which is used for most reverse mortgages, the homeowner would have higher up-front fees, has the option to voluntarily repay the loan, but is under no obligation tomake any repayment as long as he/she is eligible for the loan.

Retirees may not be eligible for a HELOCloan if they don’t have regular income. HECMs addednewsafeguards in 2015 tomake sure that they are not used solely as a last resort by thosewho have otherwise depleted their resources. However, the qualifications forHECMS are less stringent than those for aHELOC. AHECMis generally available as long as set-asides are included to cover taxes, insurance and maintenance.

Pfau points out the major advantage of theHECMis that a line of credit cannot be cancelled, frozen or reduced. No such protection is available forHELOCS. This was a significant problem forHELOCs during the financial crisis in 2008. Pfau also emphasizes that the principal limit and line of credit forHECMSwill grow throughout retirement, independent ofhome value, unlike the fixed amount available withHELOCs.

TheHECMis noncancellable and has flexible payback options. For homeownerswhowant to establish a liquid contingency fund, theHECMhas advantages thatHELOCsdon’t have.

At the end of the book, Pfau discusses the non-financial aspects of retirement success. For example, the relationship betweenwork and retirement is discussed, and the importance of strengthening relationships and social connection. Also covered is the importance of a healthy and active lifestyle.

Each chapter recommends valuable sources for further reading if youwant to investigate any subject in more detail. .

Bottom line: The guide is very comprehensive. There is no major category associated with retirement that is not covered in depth. You will find the guide an essential tool to a prosperous retirement. ElliotRaphaelson welcomes your questions and comments at raphelliot@gmail.com.

ONEPHOTO/DREAMSTIME

Elliot Raphaelson

The Savings Game