Retirement Financial Strategies

W.F. Sharpe, Retirement Economics, October 2005
(Slides from a presentation at the Pension and Investments Defined Contribution 401(k) Conference)

       Slides from a presentation arguing that  expected utility theory can lead to practical implications for strategies and products designed for those who have retired. In particular, theory suggests that some retirees might desire to purchase an insurance product that integrates an annuity with long-term care insurance to provide payoffs not possible with separate purchases of traditional annuities and long-term care insurance products.

W. F. Sharpe, "Retirement Financial Planning: A State/Preference Approach", February, 2006

A working paper designed to provide a formal framework for finding the most desirable post-retirement financial plan for an individual or family.

W.F. Sharpe, "Financing Retirement: Saving, Investing, Spending and Insuring", October, 2006

      Based on a public lecture given at Middlebury College, Vermont. An overview of the current status of retirement financing and associated public policy issues.

W. F. Sharpe, "Lockbox Separation", June, 2007

      A working paper showing that in a complete market setting, any post-retirement i nvestment and spending strategy can be implemented by setting up a series of lockboxes, one for each future year. Each box will have an initial amount of money and an investment strategy to be followed until its designated maturity year. At that point the investments are liquidated and the proceeds spent. Such an approach allows a retiree to act "in loco parentis" for his or her "future self", which may provide some protection against financial mistakes that could be made in later years.

William F. Sharpe, Jason S. Scott and John G. Watson, "Efficient Retirement Financial Strategies,", July, 2007
(forthcoming in John Ameriks and Olivia Mitchell, Recalibrating Retirement Spending and Saving, Oxford University Press, 2008)

       A paper that contrasts the financial economists' expected utility approach with rules of thumb adopted by some practitioners. The analysis shows that some popular rules are inconsistent with expected utility maximization since they subject retirees to unavoidable non-market risk. The paper also describes the lockbox approach to retirement investing and spending.

Nobel Laureate Sharpe on Retirement Economics
(Stanford Business Magazine, November 2007)

       An article by Bill Snyder describing some of my work on Post-retirement economics             

W.F. Sharpe, Retirement Lockboxes, January 2008
(Slides from a presentation to the Chartered Financial Analysts Society of San Franciso)

       Slides from a presentation that discussed the concept of retirement lockboxes, in which each year's spending is provided by a lockbox dedicated to that year, with the lockbox provided with an initial investment and an investment strategy to be followed until its maturity date. The presentation shows that with complete capital markets any retirement financial strategy can be implemented in this manner. A detailed analysis is then performed of a strategy similar to that offered by a major mutual fund company.

The 4% Rule: At What Price?
Jason S. Scott, Willian F. Sharpe and John G. Watson

           A paper describing the popular "4% Rule" for retirement spending and investment policy. This highly popular rule is shown to be inefficient and almost certainly dominated by approaches that conform more directly with the principles of financial economics.

Thought Leader Interview: William Sharpe
Karen Christensen, The Rotman Magazine (The Rotman School of Management, University of Toronto), Spring 2008

    An interview that touches on longevity risk, the four-percent rule and lockbox strategies.

Choosing Outcomes versus Choosing Products: Consumer-focused Retirement Investment Advice
Goldstein, D.G., Johnson, E.J., & Sharpe, W.F., Journal of Consumer Research, Vol. 35, No. 5, October, 2008, pp. 440-456

            A paper that presents a way to both aid and understand consumers as they construct preferencies for retirement income. The method, known as the   Distribution Builder, enables consumers to build desired probability distributions of wealth, constrained by market forces and the amount invested. Although the setting is that of an investor saving before retirement, the results provide useful information on the nature of investors' utility functions vis-a-vis income after retirement.

       Carmel CalPERS Pension Committee Report
      Richard Borda, Joseph Mark, Barbara Santry, William Sharpe and Laura Zehm, September, 2011    

             This is the final report made by an ad hoc committee appointed by the Mayor of Carmel-by-the-Sea, California to study the city's  obligations for its pension plan, administered by the California Public Employees' Retirement System.

       Post-retirement Financial Strategies: Forecasts and Valuation
      William F. Sharpe, October, 2011
             This is the pre-peer reviewed version of an article with the same title to be published in final form at the Journal of the European Financial Management Association.

       Financing Retirement
      William F. Sharpe, May, 2012
             This is the pre-reviewed version of an article with the same title to be published in final form in a book of papers by Nobel Economists intended for high school or entering college students.

        Magical Thinking about Pension Plans
       William F. Sharpe, November, 2012

            A slightly edited version of a talk given after receiving the Lillywhite Award for extraordinary lifetime contributions to Americans' economic security at the Pensions and Investments Defined Contribution Conference.

The Arithmetic of Investment Expenses
William F. Sharpe, March/April 2013
            This is a paper published in the Financial Analysts Journal on the effects of investment expenses on an investor's terminal wealth. It introduces a useful measure -- the Terminal Wealth Ratio, ncludes simple formulas for cases involving lump-sum investments, and provides estimats for cases involving multiple investments over time.