The Halloween Candy Problem: An Intuitive Model for the Drawdown Phase of the Life Cycle

Abstract

The Halloween candy problem is faced by millions of American households each October 31, as they choose a strategy for giving out Halloween candy—it’s the trade-off between not wanting to run out of candy versus having too much candy left over at the end of the evening. This paper argues that this problem has similarities to the more complex problem retirees face of managing the spend-down of retirement assets, where the trade-off is essentially the same. The Halloween candy problem may be an intuitively appealing story to tell to retirees to explain the basic principle of how to manage the spend down of their assets. Further, understanding how people manage the Halloween candy problem may provide insights for how people might solve the more complex asset spend-down problem. The commonly suggested 4% rule is at odds with commonly used approaches for solving the Halloween candy problem, with the Halloween candy approach being more pragmatic, dynamic, and intuitively appealing.

TOPICS: Legal/regulatory/public policy, retirement