Monday, January 13, 2014

Maximizing "Expected Utility" to Develop An Optimal Decumulation Strategy

Mark J. Warshawsky has formed a new company, ReLIAS llc, which is looking to partner with financial and insurance organizations interested in providing decumulation strategies and products to retired individuals. Mark advocates combining a systematic withdrawal approach from a portfolio of diversified assets with a laddered series of relatively small and regular purchases of single premium life annuities.  His general approach anticipates that the portfolio of diversified assets will eventually be replaced over time by the purchased single premium life annuities.  Mark has developed an algorithm which maximizes a mathematical function (the "Expected Utility) which considers (among other things) the preferences and goals of the retired household for higher income in retirement and accumulation of greater wealth, as well as the retired household's concern for risk.

You can read more about Mark's approach and his thoughts about optimal decumulation strategies in his new website.

For those who wish to "drill-down" more into his research, I recommend that you look at his recent (January, 2014) Power Point Presentation in the section which describes his approach.
I worked with Mark when he was the Director of Retirement Research at Towers Watson.  He is one bright guy.  We wish Mark well in his new endeavor and look forward to more educational material on his website on the subject of optimal decumulation strategies.