PT - JOURNAL ARTICLE AU - David Blanchett AU - Paul Kaplan TI - Alpha, Beta, and Now… Gamma AID - 10.3905/jor.2013.1.2.029 DP - 2013 Oct 31 TA - The Journal of Retirement PG - 29--45 VI - 1 IP - 2 4099 - https://pm-research.com/content/1/2/29.short 4100 - https://pm-research.com/content/1/2/29.full AB - Investors arguably spend the most time and effort selecting “good” investment funds/managers—the so-called alpha decision—as well as on the asset-allocation, or beta, decision. However, alpha and beta are just two elements of myriad important financial planning decisions, many of which can have a far more significant impact on retirement income.The authors present a concept that they call “gamma,” designed to quantify how more intelligent financial planning decisions can add value, measured through a certainty-equivalent, utility-adjusted retirement income metric, and focused on five fundamental financial planning decisions/techniques: a total wealth framework to determine the optimal asset allocation, a dynamic withdrawal strategy, incorporating guaranteed income products (i.e., annuities), tax-efficient decisions, and liability-relative asset allocation optimization.Using a Monte Carlo simulation, the authors estimate that 22.6% more in certainty-equivalent income can be generated using a gamma-efficient retirement income strategy as compared to a base scenario. Unlike traditional alpha, which can be hard to predict and is a zero-sum game, the authors find that gamma (and gamma equivalent alpha) can be achieved by anyone following an efficient financial planning strategy.TOPIC: Retirement, legal/regulatory/public policy, wealth management