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How Risky is Your Retirement Income Risk Model
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The 4% rule, Monte Carlo simulation, Portfolio Sustainability, Retirement Income, Risk Modeling
Very short description for use in the program to help attendees understand more than a title can describe
Adequate lifetime income sustainability is a critical portfolio objective for retired investors. There are a number of ways to ascertain the likelihood that a portfolio’s investment strategy is suitable to its cash flow requirements. This article provides a brief review of various retirement income modeling approaches including historical back testing, Monte Carlo simulations, and other more advanced risk modeling techniques. We compare risk model outputs, evaluate their credibility, and demonstrate how an over-simplified model may distort the risks retired investors face. The paper ends with some general comments regarding model risk and practitioner investment advice.