TY - JOUR
T1 - Perfect withdrawal in a noisy world
T2 - Investing lessons with and without annuities while in drawdown between 2000 and 2019
AU - Clare, Andrew
AU - Seaton, James
AU - Smith, Peter N.
AU - Thomas, Stephen
N1 - Publisher Copyright:
© 2021 Portfolio Management Research. All rights reserved.
PY - 2021/6
Y1 - 2021/6
N2 - This article shows how the relatively new concept of Perfect Withdrawal Rate can be used in assessing the appropriate sustainable withdrawal amounts from a pot of wealth. This concept can be applied equally to private retirement funds, endowments, and charities-and indeed in any context requiring regular withdrawals from an initial source of funds. The subject of estimating sustainable withdrawal rates usually falls back on describing the likely minimum safe withdrawal possibilities for various portfolio constructions over different decumulation periods. This analysis employs either a long period of historical data or a recombination of data in the form of Monte Carlo simulations. To illustrate the power of the Perfect Withdrawal concept, the article considers the case of someone who initiated retirement on January 1, 2000, at age 65 and, with the benefit of actual investment returns, assesses investment and withdrawal rate options and lessons to be learned from this experience. The article also introduces the concept and a methodology for purchasing a delayed annuity so that at age 85 (on December 31, 2019), the hypothetical retiree is fully transitioned from investment income to annuity income for the rest of their life, no matter how long that may be.
AB - This article shows how the relatively new concept of Perfect Withdrawal Rate can be used in assessing the appropriate sustainable withdrawal amounts from a pot of wealth. This concept can be applied equally to private retirement funds, endowments, and charities-and indeed in any context requiring regular withdrawals from an initial source of funds. The subject of estimating sustainable withdrawal rates usually falls back on describing the likely minimum safe withdrawal possibilities for various portfolio constructions over different decumulation periods. This analysis employs either a long period of historical data or a recombination of data in the form of Monte Carlo simulations. To illustrate the power of the Perfect Withdrawal concept, the article considers the case of someone who initiated retirement on January 1, 2000, at age 65 and, with the benefit of actual investment returns, assesses investment and withdrawal rate options and lessons to be learned from this experience. The article also introduces the concept and a methodology for purchasing a delayed annuity so that at age 85 (on December 31, 2019), the hypothetical retiree is fully transitioned from investment income to annuity income for the rest of their life, no matter how long that may be.
KW - Foundations & endowments
KW - Pension funds
KW - Quantitative methods
KW - Retirement
KW - Simulations
UR - http://www.scopus.com/inward/record.url?scp=85112499414&partnerID=8YFLogxK
U2 - 10.3905/JOR.2021.1.090
DO - 10.3905/JOR.2021.1.090
M3 - Review article
SN - 2326-6899
VL - 9
SP - 9
EP - 39
JO - Journal of Retirement
JF - Journal of Retirement
IS - 1
ER -