RT Journal Article
SR Electronic
T1 Return Sequence and Volatility: <em>Their Impact on Sustainable Withdrawal Rates</em>
JF The Journal of Retirement
FD Institutional Investor Journals
SP 81
OP 98
DO 10.3905/jor.2014.2.2.081
VO 2
IS 2
A1 Matthew B. Kenigsberg
A1 Prasenjit Dey Mazumdar
A1 Steven Feinschreiber
YR 2014
UL https://pm-research.com/content/2/2/81.abstract
AB This article explores estimates for a sustainable withdrawal rate (SWR) for a typical retiree and examines two important factors that challenge sustainability: sequence of returns and volatility of returns. Using historical analysis, the article explores the implications of sequence of returns risk and suggests strategies for countering it, including annuitization and adaptive withdrawal strategies. The article also explores volatility risk, separated as much as possible from sequence risk, and finds that the relationship between volatility, return, and SWR is not linear. In fact, for a given horizon and degree of confidence, the relationship between the Sharp ratio and the rate of return displays an inflection point, where the level of return required per unit of risk reaches a minimum.TOPICS: Retirement, risk management, volatility measures