Withdrawal Rate Strategies for Retirement Portfolios: Preventive Reductions and Risk Management
John B. Mitchell
Central Michigan University - Department of Finance and Law
October 15, 2009
This paper builds on the work of Stout and Mitchell (2006), Stout (2008), and Blanchett and Frank (2009) by creating a preventive approach to withdrawal management. Proactive strategies, which reduce the withdrawal rate before there are insufficient funds, are shown to significantly reduce the probability of ruin (shortfall) while maintaining the average withdrawal rate. The paper also explores the micro effects of strategy changes by dividing the simulation iterations into groups which have been positively or negatively affected by any particular change, and demonstrates that conventional reporting of the effectiveness of withdrawal rate management techniques can be improved by examining additional moments of the distribution. Data covers 1926-2008 and the mortality table is extended to 108 years.
Number of Pages in PDF File: 20
Keywords: withdrawal rate, retirement, risk management
JEL Classification: G11, C15, I12, J26working papers series
Date posted: October 16, 2009
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