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Safe withdrawal rates from retirement savings for residents of emerging market countries

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  • Meng, Channarith
  • Pfau, Wade Donald

Abstract

Researchers have mostly focused on U.S. historical data to develop the 4 percent withdrawal rate rule. This rule suggests that retirees can safely sustain retirement withdrawals without outliving their wealth for at least 30 years, if they initially withdraw 4 percent of their savings and adjust this amount for inflation in subsequent years. But, the time period covered in these studies represents a particularly favorable one for U.S. asset returns that is unlikely to be broadly experienced. This poses a concern about whether safe withdrawal rate guidance from the U.S. can be applied to the situation in other countries. Particularly for emerging economies, defined-contribution pension plans have been introduced along with under-developed or non-existing annuity markets, making retirement withdrawal strategies an important concern. We study sustainable withdrawal rates for a sample of 25 emerging countries and find that the sustainability of a 4 percent withdrawal rate differs widely and can likely not be treated as safe. The results suggest, as well, high stock allocations in the portfolio mix are not the optimal choice for retirees in emerging market countries.

Suggested Citation

  • Meng, Channarith & Pfau, Wade Donald, 2011. "Safe withdrawal rates from retirement savings for residents of emerging market countries," MPRA Paper 31080, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:31080
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    File URL: https://mpra.ub.uni-muenchen.de/31080/1/MPRA_paper_31080.pdf
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    References listed on IDEAS

    as
    1. Wade D. Pfau, 2010. "An International Perspective on Safe Withdrawal Rates from Retirement Savings: The Demise of the 4 Percent Rule?," GRIPS Discussion Papers 10-12, National Graduate Institute for Policy Studies, revised Oct 2010.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Do-It-Yourself Safe Withdrawal Rates
      by Wade Pfau in Pensions, Retirement Planning, and Economics Blog on 2011-10-27 19:31:00

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    More about this item

    Keywords

    Sustainable withdrawal rates; bootstrapping; optimal asset allocation; emerging market economies; retirement planning; defined-contribution pensions;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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