Sequence Risk: Managing Retiree Exposure to Sequence Risk Through Probability of Failure Based Decision Rules
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
Unified Trust Company, NA
November 9, 2010
• 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.
Number of Pages in PDF File: 36
Keywords: Retirement Planning, Adjustable Withdrawal Rates, Sequence Risk, Probability of Failure
JEL Classification: D14, D81, D90, G11, G17
Date posted: May 26, 2011