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Abstract
The evaluation of retirement strategies is typically based on the failure rate (the rate at which a retiree’s nest egg is exhausted prematurely), although some alternatives have been proposed recently. One of these is risk-adjusted success (RAS), which aims to capture not just the failure but also the success of the strategies evaluated. The main shortcoming of RAS is that it measures risk with the standard deviation, which penalizes strategies that leave large bequests. The variable proposed here, downside risk-adjusted success (D-RAS), addresses this shortcoming by taking a downside risk perspective, measuring risk with the semi-deviation and, therefore, with volatility below a chosen benchmark. This modification leads to the selection of more plausible strategies than those selected by both the failure rate and RAS.
TOPICS: Retirement, risk management, analysis of individual factors/risk premia
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