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Financing an Uncertain Retirement Part I: Spending Strategies

Executive Summary

  • Real-world retirees exhibit several behaviors that conflict with the predictions of canonical retirement income models. Often, this is presented as evidence of irrational behavior on the part of retirees.
  • This paper, the first in a two-part series, takes a different approach. A key component of retirement is uncertainty: We do not know how long assets must last or even how much we will have to spend.
  • Uncertain future spending needs dramatically alter the results of typical retirement income models and generate predictions that more closely reflect real-world behaviors.

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Sean Klein

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The models, scenarios and decisions included here are not based on any particular financial situation, or need, and are not intended to be, and should not be construed as a forecast, research, investment advice or a recommendation for any specific PIMCO or other strategy, product or service. Individuals should consult with their own financial advisors to determine the most appropriate allocations for their financial situation, including their investment objectives, time frame, risk tolerance, savings and other investments.

The analysis contained in this paper is based on hypothetical modeling. Hypothetical performance results have many inherent limitations, some of which are described below.  No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program or strategy. 

One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight.  In addition, hypothetical trading or modeling does not involve financial risk, and no hypothetical example can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses, are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, all of which can adversely affect actual results. No guarantee is being made that the stated results will be achieved.

Return assumptions are for illustrative purposes only and are not a prediction or a projection of return. Return assumption is an estimate of what investments may earn on average over the long term. Actual returns may be higher or lower than those shown and may vary substantially over shorter time periods. These figures are not indicative of the past or future performance of any PIMCO product.

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Figures are provided for illustrative purposes and are not indicative of the past or future performance of any PIMCO product.

PIMCO does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax or legal questions and concerns.

There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.

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CMR2020-0527-1198461

Financing an Uncertain Retirement Part II: Portfolio Construction
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