Taking Portfolio Spending Into the Real World for Retirees

There has been too much emphasis on the portfolio and spending conservatively to keep failure rates low. This is not the whole story for retirement income. Certain circumstances, which we will explore, may allow retirees to accept a higher probability of “failure,” and spend more aggressively from their investment portfolio.

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The Possibilities of Broader Diversification in Retirement

Often, retirees are limited to accepting whatever a researcher assumes about market returns in order to obtain guidance about sustainable spending rates. I proposed a general framework for determining a safe withdrawal rate for a given retirement duration, acceptable failure probability, asset allocation, and capital market expectations.

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Understanding the Funded Ratio

Everyone wants to know where they stand with their finances – Will I be able to have the retirement I want? Do I have enough? Roughly how far do I have to go? Am I overfunded (believe me, it happens)?

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Dynamic Programming Methods For Retirement Income

In addition to other methods we’ve discussed, a third type of variable spending model uses dynamic programming methods. These methods rely on complex computing power and mathematical equations to integrate spending and asset allocation decisions more completely over the life cycle.

Dynamic programming provides a road map at each point in time for optimal spending and asset allocation, which have been determined by first considering optimal future behavior stemming from today’s decisions.

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