This article is part of a series; click here to read Part 1. Using the portfolio return and volatility assumptions determined in Exhibit 1.1, we then reverse engineer fixed return assumptions and sustainable spending levels for a desired retirement time horizon and targeted probability of success. The investment portfolio is modeled using 100,000 Monte Carlo […]
This article is part of a series; click here to read Part 1. The fundamental risk for retirement is unknown longevity, which is summarized in the question, how long will your retirement plan need to generate income? It is the risk of running out of assets before running out of time. The length of retirement […]
It is important to understand from the very outset how changing risks are primarily what separate retirement income planning from traditional wealth management. Retirees have less capacity for risk, as they become more vulnerable to a reduced standard of living when risks manifest. Those entering retirement are crossing the threshold into an entirely foreign way […]
“Think equal, build smart, innovate for change”. It is a time to applaud the progress of women’s achievements around the world. However, even with incredible progress, women face unique circumstances when approaching retirement.
As David Blanchett says: failure is really only failure if wealth is depleted while you are still alive, not just over an arbitrarily long time period.
In regards to my last column, I find it helps to visualize the data, and Exhibit 1 shows the specific spending rates for a variety of asset allocations and retirement lengths. It also shows the withdrawal rates implied by the required minimum distribution (RMD) rates set by the IRS for tax-deferred retirement accounts.
The 4% rule has a planning horizon of thirty years. But is that a long enough horizon?
Life expectancy is tricky. Average life expectancy at birth is 71 years, but it’s constantly changing depending on your age and myriad other factors.
Longevity risk—the risk of running out of assets before running out of time—is fundamental to retirement. We know about the distribution of longevity for the overall population, but an individual cannot know in advance precisely where he or she will fall in the distribution.
The safety-first school of thought was originally derived from academic models of how people allocate their resources over a lifetime to maximize lifetime satisfaction.