An Overview of Retirement Income Strategies
11 Pages Posted: 18 Oct 2016
Date Written: April 1, 2016
This paper provides an introduction to strategies that can be used to turn a retirement portfolio into income. Defined contribution savings present a retirement planning challenge when asset returns, longevity, and spending needs are uncertain. We present the fundamental trade-offs of managing an investment portfolio and decumulating investments in retirement, and we discuss the potential benefit of financial products that address portfolio and spending risks. Simulations illustrate the trade-offs among legacy, liquidity, and shortfall risk. We dis-cuss a comprehensive strategy that combines longevity protection, portfolio allocation, and dynamic spending based on realized portfolio returns to provide a guideline for professionals building retirement income plans for clients. We then provide an overview of the benefits of adding products such as annuities to a traditional investment portfolio to reduce longevity risk and increase expected spending. The primary purpose of this paper is to provide a fundamental overview of current research and theory on retirement income planning.
Suggested Citation: Suggested Citation