Nearly Optimal Asset Allocations in Retirement

I’ve just finished a short new paper called, “Nearly Optimal Asset Allocations in Retirement.”  It can be downloaded from RePEc.  In many ways, it follows from the topics considered in my last few blog posts. 
I think the main message can be summed up by the article’s conclusion:
Sustainable retirement withdrawal rates depend on capital market expectations, retirement durations, asset allocations, and acceptable failure probabilities. While this is all generally known, what this article does in particular is to show how lower stock allocations can support withdrawal rates nearly as well as higher stock allocations. This is true even with simulations based on the historical data, which may provide an overly optimistic view for forward-looking stock returns. These results are important to emphasize, because many retirees will be weary of high stock allocations, and the traditional advice from withdrawal rate studies for retirees to keep at least 50 percent stocks may not really help that much after all. Lower stock allocations can potentially perform nearly as well in supporting a given withdrawal rate while also perhaps allowing nervous retirees to sleep more peacefully at night.
Reading W. Van Harlow’s recent article is really what specifically prompted me to write this new article. His conclusion of 5-25% stocks for retirees may be fairly reasonable after all, at least for rather conservative retirees who want low failure rates. At least, retirees don’t really need to feel obliged to keep the 50-75% stock allocations that are commonly recommended in retirement withdrawal rate studies.
 I think this article relates well to the discussion in “Trinity Study and Asset Allocation” at the Boglehead’s Wiki entry, “Trinity Study Update”.  I wish the article could be a bit longer to cover more of the related literature and issues mentioned in the Wiki, but I am already really pushing the acceptable length limits for the the intended publication outlet as it is.This article is fairly short, and the key information is found in Tables 2 and 3.

McLean Asset Management Corporation (MAMC) is a SEC registered investment adviser. The content of this publication reflects the views of McLean Asset Management Corporation (MAMC) and sources deemed by MAMC to be reliable. There are many different interpretations of investment statistics and many different ideas about how to best use them. Past performance is not indicative of future performance. The information provided is for educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy or sell securities. There are no warranties, expressed or implied, as to accuracy, completeness, or results obtained from any information on this presentation. Indexes are not available for direct investment. All investments involve risk.

The information throughout this presentation, whether stock quotes, charts, articles, or any other statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission there of to the user. MAMC only transacts business in states where it is properly registered, or excluded or exempted from registration requirements. It does not provide tax, legal, or accounting advice. The information contained in this presentation does not take into account your particular investment objectives, financial situation, or needs, and you should, in considering this material, discuss your individual circumstances with professionals in those areas before making any decisions.