(UM06-11) - Designing Optimal Pension Payouts Using Life Annuities and Phased Withdrawals: A Portfolio Approach
Raimond H. Maurer
This research project will evaluate the key risk and return trade-offs of alternative ways of handling the payout phase of a defined
contribution or Social Security personal account. This project will
compare these outcomes for a life annuity versus a phased withdrawal.
The primary aim is to develop and explore the strengths and weaknesses
of alternative approaches to pension drawdowns, taking into account
uncertainty regarding the capital market, longevity, and the utility
of bequests. The project will achieve this goal by constructing a
model, optimizing simultaneously the proportion invested in life
annuities, the withdrawal fraction, and the asset allocation for
phased withdrawal. The project will inform policy by exploring
alternative payout strategies from IRAs, 401(k) plans, and, possibly,
Personal Retirement Accounts under a reformed Social Security system.