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The Floor-Leverage Rule for Retirement

Author

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  • Jason Scott

    (Financial Engines, Inc.)

  • John Watson

    (Stanford Graduate School of Business)

Abstract

The Floor-Leverage Rule is a spending and investment strategy designed for retirees that can tolerate investment risk, but insist on sustainable spending. The rule calls for purchasing a spending guarantee with 85% of wealth and investing the remaining 15% in equities with 3x leverage. Surprisingly, this leverage is a tool for managing risk. We compare our rule to some popular strategies, illustrate it for a variety of retiree preferences, and evaluate its historical performance.

Suggested Citation

  • Jason Scott & John Watson, 2013. "The Floor-Leverage Rule for Retirement," Discussion Papers 13-013, Stanford Institute for Economic Policy Research.
    • Handle: RePEc:sip:dpaper:13-013
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    References listed on IDEAS

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    Cited by:

    1. Watson, John G. & Scott, Jason S., 2014. "Ratchet consumption over finite and infinite planning horizons," Journal of Mathematical Economics, Elsevier, vol. 54(C), pages 84-96.
    2. Moshe A. Milevsky & Thomas S. Salisbury & Alexander Chigodaev, 2018. "The implied longevity curve: How long does the market think you are going to live?," Papers 1811.09932, arXiv.org.
    3. Jeon, Junkee & Park, Kyunghyun, 2020. "Dynamic asset allocation with consumption ratcheting post retirement," Applied Mathematics and Computation, Elsevier, vol. 385(C).
    4. Eli Beracha & David H. Downs & Greg MacKinnon, 2017. "The 4% rule: Does real estate make a difference?," Journal of Property Research, Taylor & Francis Journals, vol. 34(3), pages 181-210, July.
    5. Steven James Lee, 2021. "Does Fixed Income Buffer against Fraud Shocks?," JRFM, MDPI, vol. 14(10), pages 1-22, October.

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