Sequence Risk: Managing Retiree Exposure to Sequence Risk Through Probability of Failure Based Decision Rules

36 Pages Posted: 26 May 2011

See all articles by Larry R. Frank Sr

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 Blanchett

Morningstar Investment Management

Date Written: November 9, 2010

Abstract

• This paper broadens the perspective on sustainable distributions by expanding into three dimensions, introducing transitory states as well as all those states existing simultaneously.

• Withdrawal rates alone do not tell a complete sustainable distribution story; withdrawal rates are time dependent.

• The Probability of Failure (POF), a time independent variable, is more useful for true comparison of withdrawal rates over any time period or asset allocation.

• Comparison of POF surfaces, and their shift between strategies, illustrates how effective one strategy is as compared to another.

• The methodology presented provides an ability to evaluate sustainable withdrawal rates and exposure to sequence risk together.

Keywords: Retirement Planning, Adjustable Withdrawal Rates, Sequence Risk, Probability of Failure

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

Suggested Citation

Frank Sr, Larry R. and Mitchell, John B. and Blanchett, David, Sequence Risk: Managing Retiree Exposure to Sequence Risk Through Probability of Failure Based Decision Rules (November 9, 2010). Available at SSRN: https://ssrn.com/abstract=1849868 or http://dx.doi.org/10.2139/ssrn.1849868

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
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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
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John B. Mitchell

Central Michigan University - Department of Finance and Law ( email )

328 Sloan Hall
Mount Pleasant, MI 48859
989-774-3651 (Phone)

David Blanchett

Morningstar Investment Management ( email )

22 W Washington
Chicago, IL 60602
United States
859-492-5637 (Phone)

HOME PAGE: http://www.davidmblanchett.com

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