Adaptive Withdrawals

Spitzer, John J.; Strieter, Jeffrey C.; Singh, Sandeep

doi:10.3905/joi.2008.707222

Cited by 7 publications

(3 citation statements)

References 8 publications

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“…Although some studies firmly support this withdrawal rate (see Pye, 2000, Guyton, 2004, Guyton & Klinger, 2006), recent literature questions the sustainability of the 4% “safe withdrawal rate” and its ability to provide retirement portfolios. Spitzer, Strieter, and Singh (2008) suggest that the 4% rule may be an oversimplification, whereas studies by Sharpe, Scott, and Watson (2007) believe that the rule is inefficient. Other studies that oppose the 4% rule include Pfau (2011) and Drew and Walk (2014).…”

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confidence: 99%

Can sustainable withdrawal rates be enhanced by trend following?

et al. 2019

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We examine the consequences of alternative popular investment strategies for the decumulation of fundsinvested for retirement through a defined contribution pension scheme. We examine in detail the viability of specific ‘safe’ withdrawal rates including the ‘4%‐rule’ of Bengen. We find two powerful conclusions. First that smoothing the returns on individual assets by simple trend following techniques is a potent tool to enhance withdrawal rates.Second, we show that while diversification across asset classes does lead to higher withdrawal rates than simple equity/bond portfolios, “smoothing” returns in itself is far more powerful a tool for raising withdrawal rates. In fact,smoothing the popular equity/bond portfolios (such as the 60/40 portfolio) is in itself an excellent and simple solution to constructing a retirement portfolio. Alternatively, trend following enables portfolios to contain more risky assets, and the greater upside they offer, for the same level of overall risk compared to standard portfolios. To anticipate our empirical findings, we find two powerful conclusions: Smoothing the returns on individual assets by simple trend following techniques (or similar) is a potent tool to enhance withdrawal rates. Although diversification across asset classes does lead to higher withdrawal rates than simple equity/bond portfolios, “smoothing” returns is a far more powerful tool for raising withdrawal rates; in fact, smoothing the popular equity/bond portfolios (such as the 60/40 portfolio) is an excellent and simple solution to constructing a retirement portfolio.

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confidence: 99%

Can sustainable withdrawal rates be enhanced by trend following?

et al. 2019

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“…Whilst some studies firmly support this withdrawal rate (see Pye, 2000, Guyton, 2004, Guyton and Klinger, 2006, recent literature questions the sustainability of the 4 per cent 'safe withdrawal rate' and its ability to provide retirement portfolios. Spitzer, Strieter, and Singh (2007) and Spitzer (2008) suggest that the 4 per cent rule may be an oversimplification while studies by Sharpe, Scott, and Watson (2007) believe the rule is inefficient. Other studies which oppose the 4% percent rule include Pfau (2011), and Drew and Walk (2014).…”

Section: Decumulation and The 4% Rulementioning

confidence: 99%

Can Sustainable Withdrawal Rates Be Enhanced by Trend Following?

et al. 2017

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“…It is adjusted based on portfolio performance and, in some cases, an evolving time horizon. Various portfolio management withdrawal techniques are used to maximize withdrawals while keeping probability of ruin at an acceptable level (See, Ho et al , 1994, 1997; Bengen, 2001; Guyton, 2004; Stout and Mitchell, 2006, 2009; Spitzer et al , 2008; Blanchett and Frank, 2009, 2010). These studies have shown that with flexible withdrawals, either the initial withdrawal rate or the probability of success increases, compared to static withdrawal strategies.…”

Section: Introductionmentioning

confidence: 99%

An empirical evaluation of dynamic vs static withdrawal strategies

Johnston

Hatem

Carnes

et al. 2019

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Purpose The purpose of this paper is to compare simple dynamic withdrawal strategies with the static withdrawal method, examining not only failure rates and ending wealth but also spending. All withdrawal strategies are adjusted for the Internal Revenue Service’s (IRS) required minimum distribution (RMD). In addition, this study investigates the use of small company stocks (SCS) in place of large company stocks (LCS). Results indicate SCS portfolios are superior to large. When returns are poor, some dynamic strategies will not ensure income for life. This study demonstrates that the simplest dynamic strategy is superior to two popular dynamic strategies. Design/methodology/approach Using historical overlapping periods, different withdrawal strategies are examined. Previous studies focused on failure rates and ending wealth. As discussed in Milevsky (2016) different statistical distributions can have similar tail properties (prob of failure) but dissimilar risk and return profile. The detailed examination of both spending and use of small stocks advances the literature in this area. Findings Results indicate that use of small stocks is superior to using large stocks in the portfolios. When US historical stock returns are adjusted downward, there is the potential that some dynamic strategies will not ensure income for life. This study demonstrates that the simplest dynamic strategy is superior to two popular dynamic strategies. Originality/value This paper is the first to examine, in detail, annual spending results for the retiree. Second, it is shown that, overall, SCS are superior to LCS for all stock/bond allocations. Even though absolute downside risk increases slightly, this increase in downside risk is dominated by the upside potential. In other words, the positive skewness of small stock returns along with the cumulative effects of compounding at a higher rate increases both the available wealth for spending and ending wealth. Third, IRS’s RMDs are taken into account for every withdrawal strategy examined. Lastly, it demonstrates that the simplest dynamic strategy is superior to two popular dynamic strategies.

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Adaptive Withdrawals

Cited by 7 publications

References 8 publications

Can sustainable withdrawal rates be enhanced by trend following?

Can sustainable withdrawal rates be enhanced by trend following?

Can Sustainable Withdrawal Rates Be Enhanced by Trend Following?

An empirical evaluation of dynamic vs static withdrawal strategies

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