Document Type
Conference Proceeding
Publication Date
2016
Disciplines
Finance
Abstract
Popular convention is to initially withdraw approximately 4% of the retirement savings and increase that dollar amount each year by inflation. But, what if 4% isn’t enough? How long will retirement funds last if a newly retired person needs 5%, 6%, or even 10%? Modern Portfolio Theory (MPT) suggests that an investor only needs to choose between 2 assets, the risk free rate and an optimal risky portfolio. In this paper, five U.S.-based assets are tracked from 1934 until 2015 to see how long they survived independently and in combination with one other asset. Obviously the more a person needs to withdraw from retirement assets, the more quickly the assets are depleted. This paper shows just how fast (or slow) that happens. The risk of the portfolios is also assessed and addressed.
Recommended Citation
Welch, Steven, "How Long Does Savings Last When Retirees Need More Money (or Less) than Theory Suggests?" (2016). Accounting and Finance Faculty Publications. 9.
https://digitalcommons.csbsju.edu/acct_pubs/9
Comments
Presented at the Financial Education Association meeting in September 2016 and CSB/SJU Thursday Forum. Forum presentation is available here: https://digitalcommons.csbsju.edu/forum_lectures/168/.