PDF From Savings to Income: Retirement Drawdown Strategies

The American Institute for Economic Research

American Institute for Economic Research

From Savings to Income: Retirement Drawdown Strategies

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RESEARCH STUDY

AIER RESEARCH STUDY

From Savings to Income: Retirement Drawdown Strategies

American Institute for Economic Research 250 Division Street Great Barrington, MA 01230 | 413.528.1216 |

About AIER The American Institute for Economic Research provides factual, unbiased research and critical analysis on economic and financial topics that people can act on. We educate individuals on how to protect their interests, and to make informed decisions for a better America. AIER is supported by Annual Sustaining Members. To become a member, go to or call us at 413.528.1216.

Author: Luke Delorme, Research Fellow Editor: Marcia Stamell Design: Patricia Rotondo

Acknowledgments I would like to thank the following people for their assistance in writing this report: Stephen Adams, President of AIER, provided critical thinking and edits. Anthony Webb at the Boston College Center for Retirement Research provided thoughtful comments. Wade Pfau, professor of retirement income at the American College of Financial Services, offered attentive remarks that helped shape the paper and its direction. Andrew Krom, undergraduate student at Bryant University, provided excellent research assistance. David St. Peter, Seth Hoffman, and John Barry of American Investment Services, offered supportive direction and commentary on earlier drafts of this research. Editor Wren Bernstein provided important notes that helped construct the paper into a logical format. Editor Marcia Stamell provided crucial writing guidance. All analysis and any errors or omissions are the responsibility of AIER.

? Copyright 2014 American Institute for Economic Research

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AIER Research Study | From Savings to Income: Retirement Drawdown Strategies

clothing

entertainment

food

housing

healthcare

gifts

travel

Contents

01 Introduction

1

Beyond the 4 Percent Rule

1

02 Establishing Retirement Rules

3

Is the 4 Percent Rule Too Conservative?

3

Is the 4 Percent Rule Too Aggressive?

4

Reviewing the 4 Percent Rule with Recent Data

5

03 Retirement Drawdown Strategies for the 21st Century

9

AIER's Model for Retirement Finance

11

04 Results

15

Highest Utility Scores

15

Average vs. Worst-Case Scenarios

15

How Does the 4 Percent Rule Stack Up?

16

Impact of Investment Environment on Retirement Outcomes

16

Making Midterm Adjustments

19

Other Retirement Drawdown Factors

19

05 Conclusion

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06 Appendix A: Estimating Utility

23

Appendix B: Simulation Methodology

25

Appendix C: Historical Utility Scores

28

Appendix D: Monte Carlo Simulations

31

Notes

35

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