Optimal Equity Glidepaths in Retirement

121 Pages Posted: 30 Jun 2015

Date Written: June 28, 2015

Abstract

Dynamic retirement glidepaths evolve over time based on some measure such as the retiree’s funded status or current market valuations. Conversely, static glidepaths are fixed at a starting point and selected under the assumption that they will not change. In practice, new static glidepaths may be derived periodically making them more flexible. The optimal static retirement glidepath would be the one that performs better than all others with respect to some metric. When systematic withdrawals are made from a retirement portfolio, glidepaths are often assessed via the probability of ruin (or success). Our goal here is to derive the optimal static glidepath with respect to this metric. It is a result new to the literature and the shape will be of special interest to retirees, financial advisors, retirement researchers, and target-date fund providers.

Note: Fully documented source code is included in the attached proofs appendix.

Keywords: Retirement Research, Financial Planning, Equity Glidepaths, Optimization, Ruin Factor, Decumulation, Target Date Funds, Full C Implementation

JEL Classification: C61, G11, J26, D81, D14

Suggested Citation

Rook, Christopher, Optimal Equity Glidepaths in Retirement (June 28, 2015). Available at SSRN: https://ssrn.com/abstract=2624264 or http://dx.doi.org/10.2139/ssrn.2624264

Christopher Rook (Contact Author)

Stevens Institute of Technology ( email )

Hoboken, NJ 07030
United States

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