2012-07 The Retirement Risk Zone: A Baseline Study

Links to resources

Series

Finance

Description Type

Abstract

Description

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.

Creator

Brett Doran, Michael E. Drew, Adam N. Walk

Contributor Name

Alexandr Akimov

Contributor Role

Editor

Custodian

Griffith Business School

JEL Classification

G11 - Portfolio Choice; Investment Decisions, G23 - Pension Funds; Other Private Financial Institutions; Institutional Investors

Keyword/Descriptor

Retirement risk zone, Sequencing risk, Longevity risk

Data Format

pdf

Resource Type

Discussion Paper

Length

13 pages

Identifier

1836-8123, RePEc:gri:fpaper:finance:201207

Identifier Type

ISSN, RePEc Handle ID

Copyright

Copyright © 2010 by author(s). No part of this paper may be reproduced in any form, or stored in a retrieval system, without prior permission of the author(s).

Details