How Risky is Your Retirement Income Risk Model?

33 Pages Posted: 14 Jan 2015 Last revised: 16 May 2015

Date Written: May 13, 2015


Adequately sustaining lifetime income is a critical portfolio objective for retired investors. This article provides a brief review of various retirement income modeling approaches including historical back testing, Monte Carlo simulations, and other risk modeling techniques. Implausible assumptions underlying risk models may mislead investors concerning the risk and return expectations of their investment strategies. We compare risk models, evaluate their credibility, and demonstrate how overly-simplified models may distort the risks retired investors face. Failure rate differences are stark: 4% at the low end versus 49% at the high end. The article ends with general comments regarding model risk and practitioner investment advice.

Keywords: The 4% rule, Monte Carlo simulation, Portfolio Sustainability, Retirement Income, Risk Modeling

JEL Classification: C15, D31, G11

Suggested Citation

Collins, Patrick J. and Lam, Huy and Stampfli, Josh, How Risky is Your Retirement Income Risk Model? (May 13, 2015). Financial Services Review, Forthcoming, Available at SSRN: or

Patrick J. Collins

Schultz Collins, Inc. ( email )

1407 Malvern Ave.
Towson, MD 21204
United States

Huy Lam (Contact Author)

Schultz Collins ( email )

25 Orinda Way
Suite 250
Orinda, CA 94563
United States
415-354-3704 (Phone)
415-291-3015 (Fax)


Josh Stampfli

Independent ( email )

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