RT Journal Article
SR Electronic
T1 Can Collars Reduce Retirement Sequencing Risk?<br/>
               <em>Analysis of Portfolio Longevity Extension Overlays (LEO)</em>
JF The Journal of Retirement
FD Institutional Investor Journals
SP 46
OP 56
DO 10.3905/jor.2014.1.4.046
VO 1
IS 4
A1 Moshe A. Milevsky
A1 Steven E. Posner
YR 2014
UL https://pm-research.com/content/1/4/46.abstract
AB Practitioners are well aware of the pernicious effect of the “sequence of investment returns” on retirement income sustainability. Poor markets early in the withdrawal phase increase the “lifetime ruin probability” and reduce the longevity of a portfolio. In this article, the authors investigate how and when traded equity options can be used to extend the life of a retiree’s investments. They label this class of strategies longevity extension overlays (LEOs) and use simulation techniques to analyze the strategy’s theoretical properties. They also provide evidence on the efficacy of simple LEOs during the 2007–2013 period. Our results are encouraging and offer a justifiable alternative for wealth managers who want to avoid using (more complex and opaque) insurance-product solutions.TOPICS: Retirement, options, simulations