Withdrawal Rules Research Articles

Revisiting the 4% Withdrawal Rule Using Monte Carlo Simulations with Random Market Declines

Abstract This paper tracks the performance of a hypothetical retirement portfolio valued at $1,000,000 by applying the popular 4% rule of thumb withdrawals. These withdrawals are adjusted annually to account for simulated inflation and market return rates. Additionally, we incorporate different market shocks that resemble “black swan” events into our analysis. Commencing at a retirement age of 64 and adopting a 30-year retirement planning horizon, we employ Monte Carlo simulations to compute the final value of the portfolio at age 93 under various market shocks. These events occur randomly within the 30-year planning horizon. The average ending portfolio balance and the probability of fund depletion are reported, considering diverse portfolios with a range of asset allocations divided between stocks and bonds. The study's results demonstrate that a portfolio with a higher allocation to equity can yield a superior average ending portfolio balance while reducing the risk of fund depletion.

Optimal withdrawal frequency for sustainable retirement withdrawals

AbstractResearchers have studied factors that influence the sustainability of retirement withdrawals (e.g., withdrawal rate, withdrawal rules, volatility, asset allocation, taxes, longevity) for 30 years. The frequency of withdrawal patterns (e.g., annual, quarterly, monthly) has escaped inquiry. This study uses Monte Carlo simulation to show that, despite intuitive reasons to believe that dividing retirement withdrawals into smaller amounts over more frequent intervals might control volatility or sequence of return risk, withdrawal frequency has no effect on retirement withdrawal sustainability. This result is robust to simulated markets characterized by: (1) a random walk, (2) simulated markets that are autocorrelated, (3) historical returns series randomly chosen from historical return records, and (4) historical returns in their original sequence. It also highlights factors (e.g., time in market, matching withdrawals to spending patterns, and maximizing optionality) that can enhance value or increase retiree utility.

Practical Applications of Time to Retire: The 4% Withdrawal Rule

Practical Applications of Time to Retire: The 4% Withdrawal Rule

The Role of the Supreme Court of the Russian Federation in Ensuring the Institutional Development of the Judicial System and Independence of the Judiciary

The article considers institutional changes in the judicial system through the creation of appellate and cassation courts. Their importance for ensuring the independence of the judiciary and increasing the effectiveness of judicial protection of the rights and freedoms of citizens is substantiated. The principle of extraterritorial development of the judicial system of the Russian Federation is revealed. The provisions on changing the composition, structure, judicial powers of these courts, their place in the unified judicial system of the Russian Federation are analyzed. The role of the Supreme Court of the Russian Federation in the “procedural revolution” that began in October 2017 through the development of a full-scale package of amendments to the procedural codes is shown. New rules for participation in civil, arbitration and administrative processes were outlined, new deadlines were fixed; new withdrawal rules; new prejudices. Particular attention is paid to the measures taken by the Supreme Court of the Russian Federation aimed at improving the quality and efficiency of justice of the peace, the equal distribution of the workload in the absence of a justice of the peace for good reason. The role of the Supreme Court of the Russian Federation in the development of conciliation procedures through the expansion of instruments for conciliation is also noted. The conclusion is formulated about the importance of judicial and judicial changes for the effective development of the judicial system in the modern period.

Time to Retire: The 4% Withdrawal Rule

The so-called “<i>4% rule</i>” is perhaps the single most commonly referenced retirement withdrawal approach. Most discussion of this rule centers on the appropriate percentage to use, 4%, 3%, or 5%. My objective is to suggest a superior retirement rule. Superior in the sense that it will deliver a higher standard of living during one’s retirement years. I start with the observation that past retirement withdrawal analysis suffers from two key deficiencies, that is, a reliance on past US stock and bond market returns (ex-post cherry picking the best performing market) and an assumption that asset class returns can be modeled with independent and identically distributed random variables, serving to mask their important time series properties. This article repairs these two deficiencies. A new retirement distribution rule is proposed. One that distributes/liquidates an ever-increasing proportion of the retiree’s then-current portfolio as they age, but subject to a minimum monthly distribution expressed in dollar terms. This approach provides simplicity, ease of execution, and transparency. It also results in a standard of living for the retiree as expressed by the median and average monthly distributions that are 101.3% and 174.2%, respectively, above those delivered by the best possible constant-dollar withdrawal rule. This pleasing result occurs for two primary reasons. First, this new rule realizes significant benefit from selling more/less shares when markets are high/low (which is the exact opposite of what transpires with all constant-dollar rules). Or to use other words, it delivers a measurably higher IRR despite utilizing an identical asset mix. Second, the new rule effectively consumes the retiree’s entire portfolio over the retirement life, leaving no unused residual balance (again, the exact opposite of all constant-dollar rules).

Fixing feedback revision rules in online markets

AbstractFeedback withdrawal mechanisms in online markets aim to facilitate the resolution of conflicts during transactions. Yet, frequently used online feedback withdrawal rules are flawed and may backfire by inviting strategic transaction and feedback behavior. Our laboratory experiment shows how a small change in the design of feedback withdrawal rules, allowing unilateral rather than mutual withdrawal, can both reduce incentives for strategic gaming and improve coordination of expectations. This leads to less trading risk, more cooperation, and higher market efficiency.

Immune tolerance induced by hematopoietic stem cell infusion after HLA identical sibling kidney transplantation.

After the first attempt to induce operational tolerance, it has taken decades to implement it in clinical practice. Recipients with Human leukocyte antigen (HLA) identical sibling donors were enrolled. Hematopoietic stem cells (HSCs) infusion was done after HLA identical sibling kidney transplantation (KTx). Three cases included were followed up for over 8 years. The perioperative conditioning protocol included anti-CD20, rabbit anti-thymocyte globulin (ATG), total lymphoid irradiation (TLI), and cyclophosphamide. Infusion of CD3+ cells and CD34+ cells was conducted. The withdrawal of immunosuppression was determined by mixed lymphocyte reaction (MLR) and graft biopsy. Case 1 and Case 2 showed persistent chimerism, while chimerism was not detected in Case 3. All three recipients showed a low-level response to donor-specific stimulation. Case 1 and Case 3 met the withdrawal rules at 16 and 32 months after transplantation, respectively. Graft function was stable, and no rejection signs were observed in routine biopsies until 94 and 61 months after transplantation. Case 2 was diagnosed with graft-versus-host disease (GVHD) 9 months after transplantation and recovered after an enhanced immunosuppression therapy. Steroids were withdrawn after 1 year, and 0.5 mg tacrolimus twice a day is currently the only immunosuppression at 8 years and 8 months. In conclusion, our clinical experience indicated the efficacy of non-myeloablative conditioning protocol for tolerance induction in HLA identical patients. Complete chimerism might be a risk factor for GVHD.

On the impact of low interest rates on common withdrawal rules in old age

Ensuring a desired standard of living in retirement has been strongly challenged by increasing life expectancy, and simultaneously by the current and possibly long-lasting low interest environment. In contrast to literature in this field which claims annuitization of wealth being a vital part of retirement planning, many people manage their retirement savings and withdrawal policy during the retirement period independently. To this end, several easily applicable self-managed withdrawal rules are commonly recommended by financial advisors. We cast doubt on the viability of these self-managed withdrawal rules, particularly in an environment with increasing life expectancies and low interest rates. Further, we show that a mixed rule which combines the fixed percentage and the remaining lifetime rule can significantly improve retirees' welfare in an expected utility framework compared to other simple self-managed withdrawal rules. The results provide important insights for revising common recommendations by financial advisors, designing retirement products, and regulation.

Withdrawal of a participant from a limited liability company: a review of case law

The article analyzes the procedure for withdrawal of a participant from the company and outlines the novelties of legislative regulation. It is determined that the withdrawal of a participant from the company can be realized both at the discretion of this person and with certain restrictions on the free withdrawal of a person from the company. The Law of Ukraine «On Limited and Additional Liability Companies» provides different rules for withdrawal for a participant from a company that owns less than 50 percent of the share in the share capital and for a participant who owns 50 or more percent of the share in the share capital.It is established that in martial law it is legally possible to enter information into the USR on changes in the composition of participants in connection with leaving the company, but it is prohibited to carry out state registration of transfer of ownership of property to a participant who left the company. However, this restriction does not significantly affect the possibility of withdrawal of the participant from the company, as the company, as a rule, settles with the participant in cash. Replacement of the obligation to pay cash to the obligation to transfer other property can take place only with the consent of the member of the company who left.It is argued that the exercise of the right to withdraw from the company may consist in the possibility of refusing to withdraw from the company. In case of refusal to withdraw from the company, which owns less than 50 percent of the share in the share capital, such a requirement must be properly executed by the application for withdrawal of the application for withdrawal, namely in writing and notarization of the signature of the withdrawing participant. In the case of a member of the company who owns 50 percent or more of the share in the share capital, in addition to the said statement of the participant, consent to withdraw the application to withdraw from the company should be given by participants who have agreed to withdraw. Such consent must also be duly executed. Accordingly, the possibility of withdrawing the application to withdraw from the company must be realized until the actual fulfillment of the company’s obligations.

On the Impact of Low Interest Rates on Common Withdrawal Rules in Old Age

On the Impact of Low Interest Rates on Common Withdrawal Rules in Old Age

The fiscal effects of U.S. State budget stabilization funds (BSFs): evidence from a meta-analysis

A budget stabilization fund (BSF) is an important fiscal instrument for states to stabilize their budgets, but studies have found varying results regarding its impact. We conduct a meta-analysis to determine whether and under what conditions BSFs can serve as an effective countercyclical tool. By synthesizing a total of 540 effect sizes from 23 original studies, we find that on average, BSFs have a moderate positive effect on government savings and a small negative effect on fiscal stress. Additionally, strict withdrawal rules seem to attenuate the positive relationship between BSFs and government savings, and compromise the negative relationship between BSFs and fiscal stress. The presence of budget balance requirements, party conflict and some other environmental factors may also moderate the BSF-savings and BSF-stress relationships. This research contributes to the BSF literature and provides useful policy recommendations for state governments to consider when designing or revising their BSF legislations.

Fiscal Slack, Rule Constraints, and Government Corruption

Abstract This article examines the effect of fiscal slack on government corruption using the US states in the period from 1998 to 2012 as a research sample. Fiscal slack in the US states is commonly referred to as “rainy day funds” (RDFs), which are intended as countercyclical reserve funds for government‐wide purposes. Theoretically, bureaucracy models predict that fiscal slack might catalyze the embezzlement or misuse behaviors of bureaucrats, who are considered to be budget maximizers. However, formally established and rules‐bound RDFs may function as a “strongbox” that curbs officials’ discretionary power, reduces uncertainty in fiscal slack management, and ultimately restrains embezzlement and misuse behaviors. Empirically, we use the incidences and durations of natural hazards as instrumental variables for RDF balances to address the potential endogeneity problems. We find that state RDFs help reduce government corruption, especially when they are regulated by relatively looser deposit rules and stricter withdrawal rules. Evidence for Practice State RDFs function as a “strongbox” for governments’ unspent budgetary resources and negatively affect the degree of government corruption. A one‐standard‐deviation increase in per capita RDF balances reduces corruption‐related convicted officials per million population by approximately 3 or, measured in an alternative way, reduces corruption‐related convicted officials per thousand government employees by approximately 44–50. The efficacy of state RDFs in curbing government corruption is contingent on the associated rules of operation. Specifically, RDFs bound by relatively looser deposit rules and stricter withdrawal rules reduce government corruption to a greater extent.

Saving for the future: Evaluating the sustainability and design of Pension Reserve Funds

In several countries public finances are under pressure by pension obligations rising due to downward trends in fertility, increased longevity and financial markets with low interest rates. For these reasons, the establishment of Pension Reserve Funds (PRF) has flourished. Regardless of the specific objectives that these PRFs may have, a critical issue is to assess their sustainability over the long-run. Moreover, this sustainability analysis is particularly complex, due to the interaction between the macroeconomic environment, financial performance and the labor market.In this article, we use a projection model aimed to evaluate the sustainability of the PRF in a small open economy such as Chile. The case of Chile is interesting because it shares common features with economies open to international markets that have either defined benefits pension schemes and/or defined contribution schemes with minimum pension guarantees. Moreover, since the Chilean PRF features relatively well defined contribution and withdrawal rules, we have a framework against which our methodology can be used to explore the effects on PRF's sustainability of altering these rules.Our methodology takes into consideration the stochastic nature of macroeconomic, financial and labor market variables in order to evaluate the sustainability of the PRF. In contrast to deterministic measures such as funding ratios, our methodology is more appropriate to assess the role of the contribution and withdrawal rules for PRFs in evaluating the key underlying risks and their consequences for the sustainability of PRFs.

Death or Bust? The Risk with Post-Retirement Models: A Quantitative Evaluation

The purpose of this report is to quantitatively evaluate whether commonly used models of asset returns pose a threat to the successful retirement of retirees. In doing so, we evaluate the whether the 4% ‘safe’ withdrawal rule holds with more realistic models of market behaviour. Our approach comprises a quantitative evaluation seven of the most common portfolio simulation approaches including: Simple analytic formula; Historical backtesting; Bootstrapping; Analytic Stochastic; Simple Monte Carlo; Filtered Historical Simulation; Regime Switching Monte Carlo. Our results indicate that not all commonly used models are suitable for post-retirement pension planning. Our research shows that it is critical that portfolio frictions, like platform fees and adviser costs, are included in the modelling process as not to do so misrepresents the risks to the client substantially. Given these higher risks, we conclude that UK clients need to be supported with variable expenditure plans, and some security for both income and longevity.

Optimality of Tax Policy on the Basis of Comparative Analysis of Income Taxation

This paper is to determine the optimality of taxation based on a comparative analysis of income taxation in developed and developing countries. In our opinion, the main idea of income tax should be the optimal distribution of tax literacy on the basis of a direct definition of income of taxpayers or progressive taxation.&#x0D; The theoretical and methodological basis of the research is the main provisions of the market economy, classical and modern tax theories, legislative and regulatory acts of foreign countries. The main part of the empirical material is from 2002 to 2017. In the process of analysis of the actual material, together with the general scientific method of research, is used: Comparative and systemic analysis, analogy, statistical data monitoring and other methods. The comparative and systemic analysis will give us an opportunity to reveal and evaluate the ways of perfection. Analogy and comparative analysis is based on variables and features, such as the of income taxes structure, withdrawal rules, rates, tax base. Statistic concept tries to explain the named phenomena by the way of fundamental analyzing of the statistic data received resulted multiple statistic observation. Previous analyses of tax rates tend to support the hypothesis that Developed countries emphasize the importance of fairness, while developing countries are mainly focused on mobilizing budget revenues and lesser consideration of fair taxation principles, since the tax system performs a fiscal function more effectively than developing countries. &#x0D; Keywords: Tax policy, income tax, tax burden, budget, well-being

Income Sustainability in Retirement: A Case Study of the Life-Cycle Account

This article uses Monte Carlo analysis to simulate returns for a popular retirement portfolio strategy and the income derived from it in retirement in order to calculate the chance of it being depleted while the retiree is still alive. The author analyzes and contrasts several withdrawal strategies from the account to illustrate the important tradeoffs between income needs and account sustainability. Furthermore, the simulations are compared with payouts from an annuity to show the important differences between each vehicle’s ability to provide income. The primary findings are that portfolios have a higher chance of account instability with advanced age and income needs, whereas annuities may provide less income earlier in retirement, but the income is sustainable for life. TOPICS:Wealth management, retirement, pension funds, analysis of individual factors/risk premia Key Findings • The article simulates account balances and annual income withdrawals from a life-cycle investment fund held into retirement. The stochastic simulations generally showed relatively higher rates of account exhaustion past age 90. • The analyzed accounts were spent down in two ways: (1) at the Internal Revenue Service–mandated required minimum distribution (RMD) rule and (2) at a withdrawal rule equal to the maximum of either the RMD or a fixed amount to allow investors to smooth income over the rest of their life. This allows for a comprehensive analysis of differential income from a portfolio in retirement because of stochastic investment returns. The simulations show significant heterogeneity with respect to income in retirement when the drawdown follows the Internal Revenue Service’s rule for RMDs. The principal findings also show that when retirees follow a fixed annual withdrawal rule, they face nontrivial probabilities that they will either outlive their retirement savings or face the prospect of significantly diminished income at a time when additional work is not feasible. • When the spend-down simulations are compared with an annuity—low-fixed income withdrawals from the account—real annuity payouts typically offer higher income in retirement until advanced ages. As income needs rise, the life-cycle account may offer higher income early in retirement, but with an increasing probability of account depletion later in retirement, upon which the account becomes exhausted while the annuity still provides income.

Mean-Variance Analysis in Post-Retirement Planning

In this study we analyze the average spending and variability of two strategies, namely, the popular “4 percent rule” and the self-annuitized spending rule. The 4 percent rule is that each year a retiree should spend 4% of her initial wealth at retirement; the spending amount grows with the rate of inflation, so in real terms it is constant. The 4 percent rule has lower average spending and little variability, while the self-annuitized spending rule has higher average spending and higher variability. The self-annuitized spending rule is based on a theoretical foundation of expected utility maximization. We demonstrate how a retiree can make an informed decision about allocating among stocks, bonds, and annuities, and whether to combine the 4 percent spending with self-annuitized rule to get higher average spending. In particular, if future returns turn out to be lower than historical returns as many experts predict, combining the 4 percent rule and self-annuitized withdrawal rule is a valid approach to reach more than 4 percent spending on average while reducing the failure rate to be less than 10 percent. Similarly, when considering mortality, we discuss how to think about combining a purchased annuity with the self-annuitized strategy.

State Rainy Day Funds and Government General Fund Expenditures: Revisiting the Stabilization Effect

This study explores the stabilization effect of state rainy day funds (RDFs) on government general fund expenditures (GFEs). We discuss and explicitly illustrate the concept of stabilization effect. Moreover, we utilize the current year’s actual RDF usage as the explanatory variable of interest rather than the previous year’s RDF balance, which most existing studies focus on. A panel data set of states for fiscal years 1998 to 2014 is used in the empirical analysis. Due to the pro-cyclicality of the defined GFE gap and the countercyclicality of RDF usage, their positive correlation revealed in the empirical results demonstrates that the actual RDF usage helps to stabilize state government GFEs in both economic recessions and expansions. We also verify that the previous year’s RDF balance, when interacted with RDF deposit and withdrawal rules, can influence government GFEs, thus demonstrating the importance of RDF rules.

Government Policy on Distribution Methods for Assets in Individual Accounts for Retirees: Life Income Annuities and Withdrawal Rules

As the baby boom generation begins to retire, more and more workers will have accumulated considerable assets in 401(k) plans and IRAs that have no particular method of payout. This paper examines the two basic, opposing methods that have been proposed as solutions to this problem. The first is the immediate life annuity, while the second is a fixed percentage of 4 percent of the initial account balance, increased each year after the first year of distribution by the rate of inflation. I calculate the lifetime income levels and risks these methods produce using a historical simulation of asset returns, interest rates, and inflation, as well as recent data on the pricing of immediate life annuities. I judge the life annuity an effective instrument to produce lifetime retirement income?generally somewhat better than the commonly used withdrawal rules. Because household needs and preferences are diverse, however, the government should not go beyond mild encouragement and education to promote the life annuity.

Reforming Retirement Income: Annuitization, Combination Strategies, and Required Minimum Distributions

Laddered immediate life annuity purchase and asset withdrawal combination strategies represent an excellent way for retirees to manage their retirement assets in order to get lifetime income in a flexible manner while still maintaining growth, liquidity, and bequest potentials. Simulations show that even by age 95, a retiree using this strategy will get higher income, in inflation-adjusted terms, on average and across most scenarios than by using full and complete annuitization or just using the common 4 percent withdrawal rule. Moreover, a significant fund balance remains to the retiree throughout life, on average, but with no risk of running out of assets. The minimum distribution requirements that govern tax-qualified retirement accounts for older retirees should be reformed to encourage the use of these partial annuitization combination strategies. This broad reform of the required minimum distribution rules needs to be done for the same reason the Obama administration made a narrow exception to the required minimum distribution rules for longevity insurance—to achieve the reasonable public policy goal of encouraging the use of partial annuitization by retirees.