Sensitivity of Safe Withdrawal Rates to Longevity, Market and Failure Risk Preferences with Implications for Asset Allocation
BPG and Associates; affiliation not provided to SSRN
Richardson GMP - Darwin Investment Strategies
BPG and Associates
Macquarie Group – Darwin Investment Strategies
March 8, 2013
Retirees face longevity risk, or the risk of living longer (or less long) than expected; market risk, or the risk of poor investment returns over the retirement horizon, and finally; failure risk, or the risk of running out of money before death. The authors examine the sensitivity of these three risks to asset allocation and Safe Withdrawal Rates, and offer a model to optimize these factors in order to minimize the three primary risks in the context of personal preferences. Finally, a forecast model is proposed to link Safe Withdrawal Rates to contemporaneous stock market valuations and interest rates, with strong statistical significance.
Number of Pages in PDF File: 21
Keywords: Retirement, Longevity, Aftcast, Safe Withdrawal Rates, SWR, Maximum Withdrawal Rates, MWR, CAPE, Aftcast, Tactical Asset Allocation, Adaptive Asset Allocation
JEL Classification: G1, D1, C5working papers series
Date posted: March 10, 2013
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