Submitted by tom on
So what is the cost of having a retirement that is essentially free of financial risk?
A recent New York Times story (click here to read) discusses the most recent iteration of Boston University Professor Laurence Kotlikoff's ESPlanner financial planning software.
The new feature is referred to as Upside Investing, and it shows users what is required to create a stable and guaranteed standard of living / spending over the course of one's life. The concept seems similar to the "floor" concept developed by the Retirement Income Industry Association (RIIA).
One is only allowed to spend what is considered safe--namely funds that are invested in TIPS. Any funds invested in equities are considered unsafe.
Return assumptions with a relatively large allocation to TIPS requires that savings levels increase in order to meet asset level and income objectives.
Would be interesting to talk to Professor Kotlikoff about the comparative efficiency of annuities to meet the "stable and guaranteed" objectives. Seems that the large TIPS allocation and high levels of required savings might be unrealistic (and possibly less efficient) for many.
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