Making Your Nest Egg Last a Lifetime
AbstractMedia attention on retirement security generally focuses on the need to save enough to enjoy a comfortable retirement. However, accumulating a nest egg is no longer the only significant challenge – the other is managing one’s nest egg in retirement. In contrast to previous birth cohorts who often received a lifetime income from a defined benefit pension plan, in today’s 401(k) world retirees must choose how to convert their accumulated savings into a monthly paycheck. One straightforward solution to the drawdown challenge is an immediate annuity, which turns a lump sum of income into a lifelong payment stream. However, for various reasons, such annuities have not proven broadly popular. Therefore, this brief examines several alternatives. All such strategies involve a trade-off between maximizing consumption and minimizing the risk of running out of money. Calculating the optimal strategy is really hard – maybe impossible. But, despite the complexity of the problem, some strategies are clearly superior to others...
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Bibliographic InfoPaper provided by Center for Retirement Research in its series Issues in Brief with number ib2009-9-20.
Length: 7 pages
Date of creation: Sep 2009
Date of revision: Sep 2009
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-17 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"Money in motion: Dynamic portfolio choice in retirement,"
CFS Working Paper Series
2007/21, Center for Financial Studies (CFS).
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