Modern Portfolio Decumulation: A New Strategy for Managing Retirement Income

Fullmer, Richard K.
August 2007
Journal of Financial Planning;Aug2007, Vol. 20 Issue 8, p40
Academic Journal
• This article outlines a strategy to improve the ability to obtain a stable and steady stream of distributions for life from a retirement portfolio and at the same time fund future wealth goals, such as for gifts and bequests. • Typically, planners suggest managing longevity risk either by annuitization or in the spending plan (by reducing spending in the event of poor market performance or outliving the plan). This paper proposes an alternative method for managing it in the investment portfolio. • Conventional approaches often fail to properly define the investment problem. To be effective, it is important to fully address longevity risk and use appropriate and complete measures of risk and risk aversion. For this problem, modern portfolio theory is an inadequate frame- work for portfolio construction. • A new multiple-period, cash-flow-based investment framework is described that incorporates a dynamic asset allocation strategy and uses the cost of lifetime annuitization as a "hurdle" for managing longevity risk in the portfolio. • By transforming longevity risk into investment risk and actively managing it in the investor's portfolio rather than the spending plan, this approach is particularly useful for investors with a strong desire to maintain a given standard of living.


Related Articles

  • Growing Pains. Ng, Rebecca // Best's Review;Dec2010, Vol. 111 Issue 8, p83 

    The article focuses on the retirement system and the significance for its privatization in China. The necessary demand for more-effective annuity and pension products is attributed to the country's rapid development. Meanwhile, growth in pension is associated to government policies and the...

  • Key Retirement points to equity release boom. Tryphonides, Andrea // Money Marketing;5/13/2004, p23 

    Reports that specialist intermediary Key Retirement Solutions estimates that the number of consumers entering the equity release market increased by 36% in 2003. Predicted growth in 2004; Influence of the decline of post-retirement income and increase in the cost of living equity on the trend.

  • NAVA And InFRE Rolling Out Retirement Income Management Course. Koco, Linda // National Underwriter / Life & Health Financial Services;3/29/2004, Vol. 108 Issue 12, p49 

    Reports on the development of new Retirement Income Certificate Course by National Association for Variable Annuities and International Foundation for Retirement Planning. Change in the retirement market; Conversion of retirement assets into retirement income; Risk of a dramatic decline in their...

  • Taking Retirement Strategy Personally. JAFFE, MARSHALL // Research;Nov2014, Vol. 37 Issue 11, p53 

    In this article the author presents his views on decisions regarding retirement and on how to plan a retirement. He mentions that it is not possible to predict the financial markets, interest rates, and the cost of living but it is possible to control how to invest retirement income. Also he...

  • Study Finds Retirements Of Boomers, Gen-Xers At Risk. Thomas, Trevor // National Underwriter / Life & Health Financial Services;6/26/2006, Vol. 110 Issue 25, p10 

    The article reports on the survey conducted by the Center for Retirement Research at Boston College that measures the share of working-age households in the U.S. at risk of being unable to maintain their preretirement standard of living after quitting work based on a National Retirement Risk...

  • EBRI survey: Retirement-savings confidence rebounds. REINHARDT, ERIC // Business Journal (Central New York);4/4/2014, Vol. 28 Issue 14, Special section p1B 

    The article reports that according to the 24th annual Retirement Confidence Survey (RCS), released by the nonprofit Employee Benefit Research Institute (EBRD on March 18, 2014, Americans' confidence in their ability to afford a comfortable retirement is being restored. However, it says that...

  • Next generation can retire -- with planning. Snyder, Gerald // DVM: The Newsmagazine of Veterinary Medicine;Jan2012, Vol. 43 Issue 1, p67 

    The article offers suggestions for veterinarians on retiring with planning. Michael Farr, the author of "A Million Is Not Enough: How to Retire With the Money You'll Need," warns that most people with high incomes and the ability to set aside 2 million dollars will likely have more expensive...

  • Retirees Are Burning Through Assets. Ackerman, Ruthie // Bank Investment Consultant;Jan2010, Vol. 18 Issue 1, p10 

    The article reports on the maintenance of the living standards of retirees through using more of their retirement income in the U.S. It mentions the 48 percent of the nine trillion dollars, or 4.3 trillion dollars, of the retirement income is being used. It states that the income might not be...

  • £75,000 cost of being adrift in drawdown. Selby, Tom // Money Marketing;5/5/2011, p24 

    The article reports that British retirees could lose up to 75,000 pounds if they will not invest their retirement income in annuity and stay in drawdown, according to a joint research by MGM Advantage and IFA Intelligent Pensions.


Read the Article


Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics