Ensuring Retirement Security with Simple GLIDeS

Financial Analysts Journal, Forthcoming

38 Pages Posted: 30 May 2019 Last revised: 15 Apr 2020

See all articles by Adam Kobor

Adam Kobor

New York University (NYU)

Arun Muralidhar

AlphaEngine Global Investment Solutions; George Washington University

Date Written: May 7, 2019

Abstract

There is a growing retirement crisis and most of the focus has been on the fact that individuals are not saving enough for retirement, may not have access to pension schemes, or are financially illiterate. More critically, assets/financial products available to investors, may not be appropriate for the typical individual saving for retirement. The goal of retirement is to try to guarantee a target level of income ideally from retirement till death. Current glide path products shift from stocks to bonds based on one’s age, and this is unlikely to achieve the goal of a secure retirement income for two reasons: traditional bonds are not safe and the glide path is goal-independent. A new bond (SeLFIES) has been proposed as the safe asset for the goal of retirement income. This paper (i) addresses the second issue of glide-path products and tests a simple rule we call GLIDeS: Goal-based, Lifetime Income-focused, Dynamic Strategy that allocates between Equities and SeLFIES based on a retirement income goal; (ii) shows how GLIDeS could dominate standard portfolio choices (60/40, TDFs etc.), along with holding SeLFIES in isolation; (iii) introduces a new way to think about intermediate retirement targets to ensure one is on a safe path to retirement; and (iv) explores implications for level of savings required to achieve a retirement goal. The paper uses historical and Monte-Carlo simulation for reasonable future equity, interest rate and inflation scenarios, and concludes with how the choice of dynamic strategy is influenced by one’s savings rate, replacement rate, risk aversion and outlook on interest rate and risky assets.

Keywords: Intermediate Retirement Target, BFFS, SeLFIES, Retirement Security, Retirement Income, Monte Carlo Simulation, Historical Simulation, Dynamic Allocation, GLIDeS, Goals-based Investing, Lifetime Income strategy, Savings Implications

JEL Classification: G10, G11

Suggested Citation

Kóbor, Ádám and Muralidhar, Arun, Ensuring Retirement Security with Simple GLIDeS (May 7, 2019). Financial Analysts Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3384140 or http://dx.doi.org/10.2139/ssrn.3384140

Ádám Kóbor

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
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Arun Muralidhar (Contact Author)

AlphaEngine Global Investment Solutions ( email )

Great Falls, VA
United States

HOME PAGE: http://www.mcubeit.com

George Washington University ( email )

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Washington, DC 20052
United States

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