Calculate the spend rate for a given probability of retirement ruin

This function uses the Milevsky-Robinson method to find the spend rate corresponding to a given probability of retirement ruin, by parsimoniously meshing investment risk and return, mortality estimates and spending rates without resorting to opaque Monte Carlo simulations. For further details, see: Milevsky, M. and C. Robinson; "A Sustainable Spending Rate without Simulation"; Financial Analysts Journal, Volume 61, Number 6. (2005). Please note that these are approximations, so do not rely on them for financial returns or planning. All arguments are vectorised and are recycled in the standard R fashion.

Usage

probability_ruin_rate(
  return_expected,
  return_sd,
  life_remaining_expected,
  value_probability_ruin
)

Arguments

return_expected

The expected real return of the entire pension portfolio.

return_sd

The projected standard deviation of the returns of the entire pension portfolio.

life_remaining_expected

The median projected remaining lifespan of the individual in question.

value_probability_ruin

The desired probability of retirement ruin, strictly between 0 and 1.

Examples

probability_ruin_rate(
  return_expected = 0.07,
  return_sd = 0.2,
  life_remaining_expected = 28.1,
  value_probability_ruin = 0.1
)
#> [1] 0.02961815

# Vectorised: sweep over target ruin probabilities
probability_ruin_rate(
  return_expected = 0.07,
  return_sd = 0.2,
  life_remaining_expected = 28.1,
  value_probability_ruin = c(0.05, 0.1, 0.2)
)
#> [1] 0.02144814 0.02961815 0.04230316