Evaluating Retirement Strategies: A Utility-Based Approach

21 Pages Posted: 6 Mar 2018

See all articles by Javier Estrada

Javier Estrada

IESE Business School

Mark Kritzman

Windham Capital Management

Date Written: March 6, 2018


Retirees need to make two critical financial decisions, namely, the withdrawal rate and the asset allocation of their portfolios. We propose a methodology that retirees, and particularly advisors, could use to make these decisions in an optimal way. We introduce a new variable, the coverage ratio, and a theoretical approach, based on utility. Our approach can be used to make optimal decisions during both the accumulation and the retirement period, but we illustrate it by focusing on the latter, and particularly on the choice of an optimal asset allocation. We find that the strategies selected by our utility-based approach are in general somewhat more aggressive than those selected by the failure rate and other existing approaches.

Keywords: Retirement Strategies; Failure Rate; Coverage Ratio; Utility-Based Analysis

JEL Classification: G11

Suggested Citation

Estrada, Javier and Kritzman, Mark, Evaluating Retirement Strategies: A Utility-Based Approach (March 6, 2018). Available at SSRN: https://ssrn.com/abstract=3135125 or http://dx.doi.org/10.2139/ssrn.3135125

Javier Estrada (Contact Author)

IESE Business School ( email )

IESE Business School
Av. Pearson 21
Barcelona, 08034
+34 93 253 4200 (Phone)
+34 93 253 4343 (Fax)

Mark Kritzman

Windham Capital Management ( email )

800 Boylston Street
30th Floor
Boston, MA 02199
United States
6174193900 (Phone)
6172365034 (Fax)

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