The Retirement Efficient Frontier: Personalized Spending Floors and Shortfall Risk

We introduce two concepts that together make a rigorous efficient frontier framework for retirement spending possible. The Historical Spending Floor (HSF) is the highest real spending level that, under a given retiree’s accounts, taxes, Social Security, Medicare, and longevity assumptions, survives every historical return sequence—a personalized, history-grounded anchor requiring no distributional assumptions. The Synthetic Spending Floor (SSF) provides the same anchor calibrated to prospective conditions, computed from a forward-calibrated Monte Carlo scenario set. Each floor defines the conservative endpoint of a spending/shortfall efficient frontier—formally analogous to the Markowitz mean–variance frontier—that maps the full trade-off between committed spending and shortfall risk—measured as mean shortfall, equivalently the Conditional Value at Risk (CVaR)—letting retirees choose how far above the floor to commit based on their risk tolerance. We illustrate both with case studies using Owl, an open-source retirement optimizer.