Abstract

http://ssrn.com/abstract=2050003
 
 

References (8)



 


 



Transition to Old Age (Superannuation) in a 3-D, Age Based, Dynamic, Serially Connected and Annually Recalculated Retirement Distribution Model


Larry R. Frank Sr.


Academy of Financial Services; Better Financial Education; Certified Financial Planner Board (CFP)

John B. Mitchell


Central Michigan University - Department of Finance and Law

David M. Blanchett


affiliation not provided to SSRN

May 2, 2012


Abstract:     
Past research on the topic of sustainable withdrawal rates has primarily focused on longer distribution periods which apply to younger age retirees.

A structural problem with pensions, annuities, and first generation "safe withdrawal rate" is a disconnect of benefits paid (fixed or fixed with COLAs) from the underlying asset values required to support those promised benefits. Underlying asset values are variable and may decrease in value, temporarily or permanently, due to market or economic forces. A sustainable methodology needs to keep benefits connected to supporting asset values year by year throughout the entire distribution period.

This research project seeks to answer the following questions regarding superannuation (continuing to survive and live into very old ages):
- What does the withdrawal rate profile need to look like for a retiree who survives into extreme old age (superannuation)?
- What should the withdrawal rate sequence be in order to sustain portfolio values sufficient to continue cash flows from old retirement ages throughout superannuation?

Sequence Risks, Distribution Periods (Longevity Percentiles), Asset Allocations and Superannuation represent the factors incorporated into four “levers” available to practitioners to measure and manage sustainable distributions from the earlier retirement years through superannuated retirement ages.

High cash flows during early retirement years deplete the portfolio values such that cash flows are reduced during later retirement years. How does a practitioner measure this effect so as to manage cash flows both for the present and future?

Dynamic, serially connected, and annually recalculated, cash flows based on age and longevity percentiles provide insights into retirement distribution tradeoffs.

Number of Pages in PDF File: 35

Keywords: Retirement Planning, Adjustable Withdrawal Rates, Sequence Risk, Probability of Failure, Expected Longevity, Elderly, Mortality, Age Distribution, Cohorts, Superannuation

JEL Classification: D14, D81, D90, G11, G17, J11, J14

working papers series


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Date posted: May 2, 2012 ; Last revised: June 1, 2012

Suggested Citation

Frank, Larry R. and Mitchell, John B. and Blanchett, David M., Transition to Old Age (Superannuation) in a 3-D, Age Based, Dynamic, Serially Connected and Annually Recalculated Retirement Distribution Model (May 2, 2012). Available at SSRN: http://ssrn.com/abstract=2050003 or http://dx.doi.org/10.2139/ssrn.2050003

Contact Information

Larry R. Frank Sr. (Contact Author)
Academy of Financial Services
La Crosse, WI 54601
United States
HOME PAGE: http://academyfinancial.org
Better Financial Education ( email )
300 Harding Blvd Suite 103D
Roseville, CA 95765
United States
916-303-7777 (Phone)
HOME PAGE: http://www.BetterFinancialEducation.com
Certified Financial Planner Board (CFP) ( email )
1700 Broadway
Suite 2100
Denver, CO 80290-2101
United States
John B. Mitchell
Central Michigan University - Department of Finance and Law ( email )
328 Sloan Hall
Mount Pleasant, MI 48859
989-774-3651 (Phone)
David M. Blanchett
affiliation not provided to SSRN ( email )
Feedback to SSRN


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References:  8

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