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- Title
Formulating retirement targets and the impact of time horizon on asset allocation.
- Authors
Booth, Laurence
- Abstract
This paper looks at standard retirement targets such as "70@65," meaning 70% income replacement at age 65, and reconsiders them in a probabilistic setting. The paper uses a chance constrained programming model, supplemented with Monte Carlo simulation, to extend the target to "70% of 70@65" meaning a 70% chance of meeting the target. One implication of the paper is that asset mix is a function of the investment horizon. This conflicts with the constant portfolio result of Samuelson et al. but supports the standard "your age in bonds" rule of thumb of financial planning professionals.
- Subjects
RETIREMENT; RETIREMENT income; FINANCIAL planning; ASSET allocation; PERSONAL finance
- Publication
Financial Services Review, 2004, Vol 13, Issue 1, p1
- ISSN
1057-0810
- Publication type
Article