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Systematic Withdrawal Strategies for Retirees

David Laster, Anil Suri and Nevenka Vrdoljak
The Journal of Wealth Management Winter 2012, 15 (3) 36-49; DOI: https://doi.org/10.3905/jwm.2012.15.3.036
David Laster
is a director of investment analytics at Merrill Lynch Global Wealth Management, Bank of America, in New York, NY.
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  • For correspondence: david.laster@ml.com
Anil Suri
is the chief investment officer of multi-asset class modeled solutions at Merrill Lynch Global Wealth Management, Bank of America, in New York, NY.
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  • For correspondence: anil_suri@ml.com
Nevenka Vrdoljak
is a director of investment analytics at Merrill Lynch Global Wealth Management, Bank of America, in New York, NY.
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  • For correspondence: nevenka_vrdoljak@ml.com
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Abstract

The high-profile debate on spending in retirement often misses a crucial point: No single spending rate suits all retirees. This article develops guidance on spending rates for retirees. Taking into account uncertain asset returns, inflation, and longevity, the authors identify spending rates and asset allocations that minimize the expected lifetime shortfall for a systematic withdrawal plan.

The analysis shows that sustainable spending rates depend critically on a client’s age, gender, and risk tolerance. It also demonstrates that retirees can reduce the risk of outliving their wealth and increase their expected future bequest by allocating at least some of their portfolios to equities. Moreover, the younger the retiree and the greater her spending needs, the more she should allocate to equities. Finally, because their wealth must last longer, couples should allocate more to equities and spend at a more moderate rate than those who are single.

TOPICS: Retirement, risk management

  • © 2012 Pageant Media Ltd
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The Journal of Wealth Management: 15 (3)
The Journal of Wealth Management
Vol. 15, Issue 3
Winter 2012
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Systematic Withdrawal Strategies for Retirees
David Laster, Anil Suri, Nevenka Vrdoljak
The Journal of Wealth Management Oct 2012, 15 (3) 36-49; DOI: 10.3905/jwm.2012.15.3.036

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Systematic Withdrawal Strategies for Retirees
David Laster, Anil Suri, Nevenka Vrdoljak
The Journal of Wealth Management Oct 2012, 15 (3) 36-49; DOI: 10.3905/jwm.2012.15.3.036
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  • Article
    • Abstract
    • RETIREMENT PORTFOLIO DYNAMICS
    • RETIREE CHOICES: SPENDING AND ASSET ALLOCATION
    • RETIREE INVESTING GUIDANCE
    • ROBUSTNESS TEST
    • FURTHER CONSIDERATIONS
    • CONCLUSIONS
    • ENDNOTES
    • REFERENCES
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