An analytical model provides a solution to the retirement problem of how to allocate investment between risky and risk-free assets. The objective is to minimize the probability that the retiree will beunabletoconsumeatthedesiredleveloverhis/herexpectedlifetime.Theprocedure incorporates mortality tables, real or nominal rates of return, initial wealth, and desired consumption levels. Numerical examples using standard mortality tables, historic rates of return on Canadian equity and treasury bills, and a range of realistic values for wealth and consumption show that equity should play a much bigger role in retirement portfolios than other writers advise.
No takes yet. Share an insight, caveat, or question.
Ho et al. (1994) studied this question.