Efficient Retirement Financial Strategies

William F. Sharpe, Jason S. Scott and John G. Watson

in Recalibrating Retirement Spending and Saving

Published in print September 2008 | ISBN: 9780199549108
Published online January 2009 | e-ISBN: 9780191720734 | DOI:
Efficient Retirement Financial Strategies

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Today's retirees face the daunting task of determining appropriate investment and spending strategies for their accumulated savings. Financial economists have addressed their problem using an expected utility framework. In contrast, many financial advisors rely instead on rules of thumb. This chapter shows that some of the popular rules are inconsistent with expected utility maximization, since they subject retirees to avoidable, non-market risk. It also highlights the importance of earmarking ‘the existence of a one-to-one correspondence between investments and future spending’ and shows that a natural way to implement earmarking is to create a lockbox strategy.

Keywords: retirement spending; longevity; early retirement; investment strategy; financial strategy; lockbox; rules of thumb; consumption rules; financial advisor; earmarking

Chapter.  8284 words.  Illustrated.

Subjects: Pensions

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