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OPTIMAL PORTFOLIO WITHDRAWAL DURING RETIREMENT IN THE PRESENCE OF LONGEVITY RISK

  • US 20140067722A1
  • Filed: 09/04/2012
  • Published: 03/06/2014
  • Est. Priority Date: 09/04/2012
  • Status: Active Grant
First Claim
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1. A computer implemented method for calculating, by a computer processor, an optimal withdrawal amount from a retiree'"'"'s portfolio accounts consisting of financial assets, the method comprising the steps of:

  • Retrieving current values of any relatively risky and relatively safe assets of the retiree;

    Retrieving amounts of any after-tax pension and annuity income of the retiree;

    Calculating total after-tax amount of pension and annuity funds receivable by the retiree per time unit, which is referred to as Pie;

    Calculating financial wealth of the retiree at time 0, which, is referred to as W(0), as the sum of the current value of the relatively risky assets and the current value of the relatively safe assets;

    Retrieving a valuation rate, which is referred to as R, of the retiree;

    Calculating or retrieving the retiree'"'"'s level of longevity risk aversion, which is referred to as LRA;

    Calculating the retiree'"'"'s optimal wealth depletion time, which is referred to as WDT, by solving the equation OWA(WDT)−

    Pie=0, where OWA(T) is the retiree'"'"'s estimated optimal withdrawal amount at time T;

    Calculating the retiree'"'"'s optimal withdrawal amount at time 0, which is referred to as OWA(0), by performing the steps of;

    Calculating B1=EXP(R*WDT);

    Calculating N2=(W(0)+Pie/R)*B1−

    (Pie/R);

    Calculating actuarial present value for time WDT, which is referred to as APVX(WDT);

    Calculating OWA(0)=N2/APVX(WDT)/B1; and

    Displaying or communicating the value of OWA(0) to the retiree.

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