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Making Retirement Income Last a Lifetime

Journal of Financial Planning, December 2001

Posted: 3 Jan 2002  

John Ameriks

The Vanguard Group, Inc.

Robert Veres

Inside Information

Mark J. Warshawsky

Towers Watson; George Mason University - Mercatus Center

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Abstract

Professional retirement planning advice relies to a great extent on the determination of how much retirement income can be provided by systematic withdrawals from an investment portfolio. Because future investment returns, inflation rates, and how long a retiree will live are unknown, one cannot know, with certainty, how much income a retirement portfolio can ultimately provide. Recent research has incorporated uncertainty regarding investment returns and inflation in estimating maximum safe portfolio withdrawal rates. However, uncertainty regarding length of life has not been fully considered. The goal of this article is to explore the sustainability of investment portfolio withdrawals using two distinct methodologies - historical analysis and Monte Carlo simulations - to address the risk of extreme longevity. The article also examines whether annuitizing a portion of client assets makes it more likely that retirees can enjoy higher incomes over longer retirements. The results of the analysis may lead financial advisors to reconsider recommendations regarding the structure of their clients' investment portfolios in retirement.

Suggested Citation

Ameriks, John and Veres, Robert and Warshawsky, Mark J., Making Retirement Income Last a Lifetime. Journal of Financial Planning, December 2001. Available at SSRN: https://ssrn.com/abstract=292259

John Ameriks (Contact Author)

The Vanguard Group, Inc. ( email )

P.O. Box 2600
MS V36
Valley Forge, PA 19482-2600
United States
610-503-5676 (Phone)

Robert Veres

Inside Information ( email )

P.O. Box 820
Mars Hill, NC 28754
United States

Mark J. Warshawsky

Towers Watson ( email )

Arlington, VA
United States

George Mason University - Mercatus Center

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

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