A Portfolio Approach to Retirement Income Security

Abstract

Workers with defined contribution retirement plans face a daunting array of choices as they enter retirement. They need to decide how to allocate their savings among asset classes and how much to withdraw from savings to support retirement. They also need to make choices about when to claim Social Security and whether or not to purchase annuities (and what type to purchase) to provide guaranteed lifetime income in addition to Social Security. In this article, we report on a recent collaboration between the Stanford Center on Longevity (SCL) and the Society of Actuaries (SOA) aimed at analyzing the various alternatives and finding optimal combinations of asset and product allocations, and strategies for withdrawing funds from savings. An important objective in this work has been finding solutions that are sufficiently straightforward to be implemented by retiring workers in employer-sponsored retirement plans or by utilizing low-cost advice options. Solutions that require substantial adviser involvement may be too expensive for typical middle-income workers. While the report focuses on solutions for defined contribution retirement plans, its framework can also be applied to out-of-plan solutions.