A Simulation for Minimizing both the Probability and the Length of Financial Ruin in Retirement

Retirees worry about depleting their portfolio, but a greater concern could be how long they might live without income from that portfolio. A retiree may accept a 4% probability of portfolio depletion, but object to the possibility of living five or six years afterwards without that income. Thus, a retirement portfolio’s exhaustion is not a terminal event, but rather is only the beginning of a retiree’s living in poverty. This analysis simulates not only the event of financial ruin, but also its duration during the retiree’s remaining lifetime. This paper analyzes withdrawing a constant percentage of the portfolio, gender, initial asset allocation, asset allocation rebalancing methods, and low investment return environments to determine their relative impact on withdrawal strategies.