Withdrawal success optimization

Hayden Brown ()

Decisions in Economics and Finance, 2025, vol. 48, issue 1, No 29, 693-746

Abstract: Abstract For n assets and discrete-time rebalancing, the probability to complete a given schedule of investments and withdrawals is maximized over progressively measurable portfolio weight functions. Applications consider two assets, namely the S&P Composite Index and an inflation-protected bond. The maximum probability and optimal portfolio weight functions are computed for annually rebalanced schedules involving an arbitrary initial investment and then equal annual withdrawals over the remainder of the time period. Applications also consider annually rebalanced schedules that start with dollar cost averaging (equal annual investments) and then shift to equal annual withdrawals. Results indicate noticeable improvements in the probability to complete a given schedule when optimal portfolio weights are used instead of constant portfolio weights, like keeping 60% in the S&P Composite Index and 40% in inflation-protected bonds.

Keywords: Probability of ruin; Safety first principle; Optimal consumption; Retirement income; S& P Composite Index; Dollar cost averaging; C44; C61; G11 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10203-024-00487-5

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