21 Pages Posted: 10 Mar 2013
Date Written: 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.
Keywords: Retirement, Longevity, Aftcast, Safe Withdrawal Rates, SWR, Maximum Withdrawal Rates, MWR, CAPE, Aftcast, Tactical Asset Allocation, Adaptive Asset Allocation
JEL Classification: G1, D1, C5
Suggested Citation: Suggested Citation
Butler, Adam and Philbrick, Mike and Gordillo, Rodrigo and Guan, Michael, Sensitivity of Safe Withdrawal Rates to Longevity, Market and Failure Risk Preferences with Implications for Asset Allocation (March 8, 2013). Available at SSRN: https://ssrn.com/abstract=2230550 or http://dx.doi.org/10.2139/ssrn.2230550