Efficient Post-Retirement Asset Allocation

Barry Freedman

North American Actuarial Journal, 2008, vol. 12, issue 3, 228-241

Abstract: To examine post-retirement asset allocation, an extension to the classic Markowitz risk-return framework is suggested. Assuming that retirees make constant (real dollar) annual withdrawals from their portfolios, reward and risk measures are defined to be the mean and standard deviation of wealth remaining at end of life. Asset returns and time of death are both treated as random variables. Assuming constant lifetime asset allocation, the risk and reward measures can be evaluated analytically, and an efficient frontier can be determined. Life annuities can be used to extend the left-hand (low-risk) side of the efficient frontier. The desired level of wealth at end of life can be used to choose a desirable portfolio on the efficient frontier. The desirable portfolio strongly depends on the withdrawal rate. It is suggested (although not proven) that asset allocations strategies that vary with age do not add efficiency in this model, and asset allocation strategies that vary with wealth can add efficiency.

Date: 2008
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/10920277.2008.10597519 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:uaajxx:v:12:y:2008:i:3:p:228-241

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/uaaj20

DOI: 10.1080/10920277.2008.10597519

Access Statistics for this article

North American Actuarial Journal is currently edited by Kathryn Baker

More articles in North American Actuarial Journal from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().