Faculty Publications

Title

Rethinking Safe Withdrawal Rates: The Meaning of Failure

Document Type

Article

Publication Date

4-17-2012

Abstract

Merely knowing the probability that an investor’s wealth will be depleted at some point is not enough to build a retirement strategy. That is the traditional measure of failure in safe withdrawal studies, and it’s time to move beyond it. Instead, investors should consider additional factors such as how long a retiree might live after depleting his or her wealth. One must also consider other retiree goals, such as spending as much possible or leaving a bequest, other income sources that may still be available when portfolios run dry, which dampen the impact of wealth depletion, and how much flexibility retirees have to reduce their spending, should the need arise.