Boosting Retirement Income through Dynamic Withdrawals
By Ravi Saraogi
Dynamic withdrawal strategies, extensively researched internationally, remain underexplored in India. This paper bridges this significant research gap by rigorously evaluating popular dynamic withdrawal methods using Indian data. Employing simulations based on historical equity, debt and inflation data from the Indian market, we compare 10 different adaptive and dynamic withdrawal strategies. The study demonstrates that dynamic strategies can improve withdrawals and sustainability compared to static withdrawal methods. However, this improvement comes at a significant cost of volatility in receiving income from a retirement portfolio.
We use multiple metrics to evaluate dynamic withdrawal strategies across four broad areas: ability to support recurring expenditure (spending), possibility of leaving an inheritance (savings), volatility in income generation (stability) and the ability of the corpus to last the full retirement period (sustainability). The study then introduces the RetireAbility Index which combines these different metrics to arrive at a composite score for each withdrawal strategy, enabling retirees and advisors to pick a strategy best suited for their needs.
Source SSRN
