Retirement Planning: The Volatility-Adjusted Coverage Ratio

21 Pages Posted: 22 Nov 2023

Date Written: October 26, 2023


The important decisions that retirees have to make to try to achieve their financial goals during retirement often stem from models used by financial planners. Despite the important role it plays in many of those models, the failure rate has several limitations and many alternatives have been proposed. This article introduces a new metric, the volatility-adjusted coverage ratio, which incorporates the benefit (the coverage ratio) and the cost (the volatility of the portfolio) of the strategies considered. Application of this new metric is illustrated by determining the optimal asset allocation, for several initial withdrawal rates, for 22 global markets.

Keywords: Retirement planning; coverage ratio; failure rate; volatility; volatility-adjusted coverage ratio

JEL Classification: G11

Suggested Citation

Estrada, Javier, Retirement Planning: The Volatility-Adjusted Coverage Ratio (October 26, 2023). Available at SSRN: or

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)

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