Designing decumulation strategies involve a high degree of complexity. For example, popular retirees’ goals include a desire to i) receive a steady income, ii) spend as much as possible during retirement (maximise withdrawals) and iii) be protected against the risk of outliving retirement savings. Yet, these cannot all be pursued simultaneously, as they may conflict with each other. Strategies also need to take into account individuals’ preferences for consumption rates, bequests (i.e. inheritance received by heirs or heiresses) and risk tolerance levels.

Our premise is that the management of risks such as inflation and sequencing (unfavourable timings of withdrawals and market losses) as well as longevity, require dynamic management during retirement. To determine decumulation solutions, we propose a new strategy called the “Success Rate Optimiser”.

This sets out income needs in advance, and then uses a dynamic asset allocation approach to optimise a retirement portfolio’s probability of success. Specifically, this approach offers an asset allocation strategy which decreases the risk asset exposure as the value of a portfolio increases. Importantly, it provides a planned income stream and retirees can customise their solutions by selecting consumption patterns, investment horizons and asset mix constraints as well as exit thresholds for bequests and/or annuities. Compared to more traditional decumulation approaches, the Success Rate Optimiser achieves higher success rates in different market environments.

You can now read the full whitepaper at the link below