Chaos and Retirement Income

Abstract

When the media, academics, and politicians tout investment strategies such as indexing as universal truths without distinguishing between wealth accumulation and distribution, they promote strategies that are dangerous to retirees’ life savings. Accumulating wealth is a linear process, but taking withdrawals from a portfolio injects nonlinearity. Chaos theory, which focuses on nonlinear processes such as retirement income, is key to understanding why and how the rules of portfolio management change from pre- to post-retirement. This understanding is the basis for creating safer portfolios for retirees. Chaos theory is also the basis for making retirement income simpler and more personalized because it allows us to see what to pay attention to and what to ignore.

Keywords: retirement income, retirement planning

JEL Classification: G10, G11