Nearly optimal asset allocations in retirement
AbstractAn important and frequently studied question for retirees is: what is the optimal asset allocation during retirement? This article provides a brief but simple message that conservative asset allocations in retirement are quite acceptable after all. A wide range of asset allocations tend to provide very similar results in terms of sustainable withdrawal rates for given probabilities of failure. For example, with Monte Carlo simulations based on historical data parameters, a 4.4 percent withdrawal rate for a 30-year horizon could be supported with a 10 percent chance of failure using a 50/50 asset allocation of stocks and bonds. But the range of stock allocations supporting a withdrawal rate within 0.1 percentage points of this maximum extend from 27 to 87 percent. Though asset allocation will also impact the amount which can be left as bequests, it is the case that relatively low stock allocations can support retirees just as well for a given failure rate and retirement duration.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 32506.
Date of creation: 31 Jul 2011
Date of revision:
retirement planning; safe withdrawal rates; asset allocation;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
This paper has been announced in the following NEP Reports:
- NEP-AGE-2011-08-09 (Economics of Ageing)
- NEP-ALL-2011-08-09 (All new papers)
- NEP-CFN-2011-08-09 (Corporate Finance)
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.:
- Pfau, Wade Donald, 2011. "Retirement Withdrawal Rates and Portfolio Success Rates: What Can the Historical Record Teach Us?," MPRA Paper 31122, University Library of Munich, Germany.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Nearly Optimal Asset Allocations in Retirement
by Wade Pfau in Pensions, Retirement Planning, and Economics Blog on 2011-07-31 14:35:00
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