The retirement risk zone is commonly defined as the final decade of working life and the first decade of retirement. This paper undertakes a baseline study to explore the heady mix of the portfolio size effect (when the bulk of retirement savings are in play) and sequencing risk (the timing of a nasty market event) facing superannuants within this zone. The baseline approach adopted in this paper explores one idea, specifically, the impact on retirement outcomes when portfolios are subjected to a single sequencing risk event at different points through the members’ investing life. We report sensitivities between the timing (or sequence) of a negative return event on terminal wealth outcomes and associated impact on longevity risk. Finally, we find an asymmetry in the impact of sequencing risk across the pre-and post retirement phases, suggesting that great priority needs to be given to the issue of sequencing risk earlier in the members’ accumulation phase (say, 15 to 20 years prior to retirement) than convention suggests.
Brett Doran, Michael E. Drew, Adam N. Walk
Griffith Business School
G11 - Portfolio Choice; Investment Decisions, G23 - Pension Funds; Other Private Financial Institutions; Institutional Investors
Retirement risk zone, Sequencing risk, Longevity risk
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