Keywords

retirement decumulation, longevity risk, investment uncertainty

Abstract

Imagine sitting down on the day of your retirement to plan your financial future. You know what your annual expenses have been and you want to maintain your current standard of living. So, you consult a recent mortality table and find that if you’ve made it to your 65th birthday, you can expect to live to 85 years old. You perform a little calculation and find that, together with your Social Security monthly payments, you have just enough savings to maintain your current standard of living and spend all of your savings and future expected earnings by the time you die at the age of 85. But, what if you live longer? Will you be reduced to eking out an existence on Social Security alone? Where will the additional money come from? What if future investment returns are not what you anticipated at the start of your retirement? These questions are increasingly urgent in America today, as forces are combining to make planning for outliving your resources more important than it has been in the past. Old rules of thumb for spending your assets in retirement, called decumulation, need to be reconsidered.

Original Publication Citation

Investing Your Lump Sum at Retirement, written with David F. Babbel, Wharton Financial Institutions Center, Policy Series, 2007.

Document Type

Peer-Reviewed Article

Publication Date

2007

Publisher

Wharton Financial Institutions Center

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

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