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Abstract
The performance of any retirement plan needs to be gauged against an appropriately chosen benchmark. We explain the importance of making transparent the risks taken in retirement portfolios, especially QDIA portfolios, and indicate how benchmarks help with this task. Benchmarks should be chosen or constructed for both the accumulation and decumulation phases of a plan, and should have a risk level appropriate to the age and situation of investors. For example, the S&P 500 is a poor benchmark to use when investors are five years from retirement. Given the importance of income to retirees, a benchmark for decumulation should be based on matching assets to liabilities or planned spending, and it should minimize longevity, investment, counterparty, and liquidity risks. We give an example of a decumulation benchmark, which is based on a strategy of holding TIPS and deferred life annuities. This is a call to action: Only by adopting the best practice of choosing and using an appropriate benchmark for retirement portfolios—accumulation and decumulation—can fiduciaries execute the responsibility they have agreed to take on.
TOPICS: Retirement, performance measurement, portfolio construction
- © 2013 Pageant Media Ltd
Don’t have access? Click here to request a demo
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US and Overseas: +1 646-931-9045
UK: 0207 139 1600