A New Strategy to Maximize Retirement Withdrawals Using TIPS and Longevity Insurance

29 Pages Posted: 14 Oct 2008 Last revised: 24 Aug 2016

See all articles by S. Gowri Shankar

S. Gowri Shankar

University of Washington, Bothell School of Business

Date Written: October 9, 2008

Abstract

Previous studies suggest that retirees face the risk of financial ruin even with (real) withdrawal rates as low as 4%. This paper proposes a new retirement investment strategy using Treasury Inflation Protected Securities (TIPS) and longevity insurance products that would permit annual withdrawal rates in excess of 5% without any risk of ruin; this strategy does not require retirees to irrevocably commit their entire savings in an annuity at retirement. The strategy can be implemented at minimal cost by retirees and their financial advisers. Institutional providers can adapt this strategy to design and develop products that provide inflation adjusted lifetime annuities, while allowing retirees to retain control over most of their savings in retirement.

Keywords: retirement planning, withdrawal rates, TIPS, longevity insurance, financial ruin

JEL Classification: D14, G22

Suggested Citation

Shankar, S. Gowri, A New Strategy to Maximize Retirement Withdrawals Using TIPS and Longevity Insurance (October 9, 2008). Financial Services Review, 2009, vol. 18, pp.53‐68.. Available at SSRN: https://ssrn.com/abstract=1281565 or http://dx.doi.org/10.2139/ssrn.1281565

S. Gowri Shankar (Contact Author)

University of Washington, Bothell School of Business ( email )

18115 Campus Way NE
Bothell, WA 98011-8246
United States

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