Efficient Retirement Financial Strategies
William F. Sharpe
Stanford University - Graduate School of Business
Jason S. Scott
Financial Engines, Inc.
John G. Watson
Financial Engines, Inc.; Stanford University - Graduate School of Business
Pension Research Council Working Paper Series
Today's retirees face the daunting task of determining appropriate investment and spending strategies for their accumulated savings. Financial economists have addressed their problem using an expected utility framework. In contrast, many financial advisors rely instead on rules of thumb. We show that some of the popular rules are inconsistent with expected utility maximization, since they subject retirees to avoidable, non-market risk. We also highlight the importance of earmarking - the existence of a one-to-one correspondence between investments and future spending - and show that a natural way to implement earmarking is to create a lockbox strategy.
Number of Pages in PDF File: 30
Keywords: Retirement, Drawdown, Planning, Lockbox
JEL Classification: D1, D9, E21, G11, G23, H31, J26working papers series
Date posted: August 13, 2007
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