Low Bond Yields and Safe Portfolio Withdrawal Rates

Blanchett, David; Finke, Michael; Pfau, Wade

doi:10.3905/jwm.2013.16.2.055

Cited by 12 publications

(6 citation statements)

References 5 publications

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“…Finke, Pfau, and Blanchett (2013) used simulations to review the safe withdrawal rate in the current low-yield environment to conclude that a 30-year retirement portfolio would have a failure rate of 18% if yields revert to their historic mean in 5 years. Similarly, Blanchett, Finke, and Pfau (2014) test the sustainable withdrawal rate in a low bond-yield environment and use a drift model of bond yields to show that a 4% initial withdrawal rate has just a 50% probability of success over a 30-year retirement horizon.…”

Section: Background and Literature Reviewmentioning

confidence: 99%

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Athavale,

Avila,

Goebel

2022

FSR

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The traditional model of retirement planning centers around the accumulation of a portfolio dur- ing the earning years followed by a drawdown from this portfolio after retirement. This drawdown is intended to support a desired retirement lifestyle, and central to a successful retirement is the sustain- ability of the retirement portfolio over the expected planning horizon. We define portfolio success to mean the ability of the retirement portfolio to sustain a desired retirement lifestyle over the desired planning horizon, and use simulations and logistic regressions to evaluate the impact of asset alloca- tion, the profile of portfolio returns, the withdrawal rate, and the length of the planning horizon on portfolio success. Our analysis shows that the likelihood of success is inversely related to withdrawal rate, retirement horizon, and portfolio risk increase, and directly related to portfolio return, allocation aggressiveness, and early experience. The analysis also indicates that portfolio success is highly sen- sitive to withdrawal rates, with conservative allocations exhibiting greater variation in portfolio out- comes and aggressive allocations providing more dependable portfolio outcomes for retirees who desire higher withdrawal rates.

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Section: Background and Literature Reviewmentioning

confidence: 99%

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Athavale,

Avila,

Goebel

2022

FSR

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“…JP Morgan 2014). Other financial advisors contend that the Bengen rule is too aggressive in a long term, low interest environment (Blanchett et al 2013).…”

Section: Accumulation and Decumulationmentioning

confidence: 99%

Behavioral Finance, Decumulation, and the Regulatory Strategy for Robo-Advice

Baker¹,

Dellaert²

2019

The Disruptive Impact of FinTech on Retirement Systems

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This chapter examines the regulatory and market structure concerns raised by automated financial advisors, and arrives at two conclusions. First, the principles-based regulatory approach of the 1940 Investment Advisors Act in the U.S. appears adequate and sufficiently flexible to address the new issues raised by automation, at least for now. Second, there is a pressing need to develop new mechanisms for encouraging investment robo-advisors (and financial advisors generally) to provide high quality decumulation services to their customers, because neither of the two prevailing compensation approaches—assets under management and commissions—provides sufficient incentive at present, and consumers are poorly equipped to evaluate the quality of decumulation services on their own.

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“…Asset returns are estimated using an autoregressive model (Blanchett et al 2013), calibrated so that one return series approximates the historical averages; it includes three additional scenarios of low, medium, and high expected returns. The high scenario has returns similar to long-term averages but incorporates today's low bond yields.…”

Section: Estimated Increases In Optimal Savings Ratesmentioning

confidence: 99%

“…2. Alternative replacement levels are explored by Aon Consulting (2008) and Blanchett et al (2013), among others. 3.…”

Section: Notesmentioning

confidence: 99%

Low Returns and Optimal Retirement Savings

Blanchett¹,

Finke²,

Pfau³

2018

Oxford Scholarship Online

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Lifetime financial outcomes relate closely to the sequence of investment returns earned over the lifecycle. Higher return assumptions allow individuals to save at a lower rate, withdraw at a higher rate, retire with a lower wealth accumulation, and enjoy a higher standard of living throughout their lifetimes. Often analysis of this topic is based on the investment performance found in historical market returns. However, at the present bond yields are historically lower and equity prices are quite high, suggesting that individuals will likely experience lower returns in the future. Increases in life expectancy, especially among higher-income workers who must also rely more heavily on their private savings to smooth spending, further increases the cost of funding retirement income today. The implications are higher savings rates, lower withdrawal rates, the need for a larger nest egg at retirement, and a lower lifetime standard of living. We demonstrate this using a basic life cycle framework, and provide a more complex analysis of optimal savings rates that incorporates Social Security, tax rates before and after retirement, actual retirement spending patterns, and differences in expected longevity by income. We find that lower-income workers will need to save about 50 percent more if low rates of return persist in the future, and higher-income workers will need to save nearly twice as much in a low return environment compared to the optimal savings using historical returns.Links to third party websites are provided by Oxford in good faith and for information only. Oxford disclaims any responsibility for the materials contained in any third party website referenced in this work.

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Low Bond Yields and Safe Portfolio Withdrawal Rates

Cited by 12 publications

References 5 publications

Your mileage may vary

Your mileage may vary

Behavioral Finance, Decumulation, and the Regulatory Strategy for Robo-Advice

Low Returns and Optimal Retirement Savings

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