Spending Strategies

The objectives at retirement can be boiled down to the following:

• an overwhelming need for income and the sustainability of that income

• a secondary (typically less important) need to leave assets for beneficiaries

The forces working against the achievement of these objectives can also be boiled down to the following:

1. financial market risk, this includes general market risk and sequencing risk

2. longevity risk, the time horizon in retirement is unknown and this speaks to the real risk of an investor outliving their capital base

We wanted to introduce real world constraints in a modelling framework to draw realistic conclusions and guidelines from our research.

The largest differentiator of our research is that we used a simulation process to produce portfolios that take any number of different paths possible given the risk and return characteristics of the portfolio.

As opposed to merely back testing a portfolio to what has happened in the past (effectively only one path of returns) we simulated thousands of different paths for each scenario. We feel that this is more robust because it is unlikely that the returns experienced over the last few decades will be repeated over the next few decades