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Impact of persistent bad returns and volatility on retirement outcomes

Author

Listed:
  • Basu, Anup K.
  • Wiafe, Osei K.

Abstract

We examine wealth outcomes and risk of ruin faced by retirees due to persistent bad returns and high volatility in equity markets occurring at different stages of their retirement. Our results show poor equity returns persisting over long periods can put retirement security to serious risk but volatile market conditions actually have the opposite impact. The timing of such persistent bad returns and volatility (early or late stages of retirement) is critical and has differing effects on retirement outcomes. The results are robust to varying portfolio allocations to equities although the precise impacts are different.

Suggested Citation

  • Basu, Anup K. & Wiafe, Osei K., 2017. "Impact of persistent bad returns and volatility on retirement outcomes," Finance Research Letters, Elsevier, vol. 21(C), pages 201-205.
    • Handle: RePEc:eee:finlet:v:21:y:2017:i:c:p:201-205
    DOI: 10.1016/j.frl.2016.12.011
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    References listed on IDEAS

    as
    1. Ronald Newley & Nick Ingram & Veronic Livera & Sheridan Thompson, 2007. "Who's afraid of the big bad bear? Or, why investing in equities for retirement is not scary and why investing without equities is scary," Chapters, in: Hazel Bateman (ed.), Retirement Provision in Scary Markets, chapter 2, Edward Elgar Publishing.
    2. G. William Schwert, 2011. "Stock Volatility during the Recent Financial Crisis," European Financial Management, European Financial Management Association, vol. 17(5), pages 789-805, November.
    3. Dimitris Politis & Halbert White, 2004. "Automatic Block-Length Selection for the Dependent Bootstrap," Econometric Reviews, Taylor & Francis Journals, vol. 23(1), pages 53-70.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Retirement; Probability of shortfall; Ruin risk; Equity allocation; Volatility;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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