Reality check: The implications of applying sustainable withdrawal rate analysis to real world portfolios

Abstract

This paper brings portfolio sustainability research closer to practical application by examining how common practitioner investment and withdrawal strategies impact sustainability. The results suggest that the application of a multiasset portfolio model may improve sustainability success rates relative to simple two-asset models illustrated in previous research, and the advantage becomes more pronounced with higher withdrawal rates and longer time horizons. We also find that a "bonds first" withdrawal strategy appears to be superior to a constant allocation strategy as both time horizon and withdrawal rate rise. Most notably, the results of our analysis suggest that there is no single optimal retirement asset allocation, but rather a continuum of ideal allocations that become increasingly equity-weighted as the investor's required withdrawal rate and/or expected time horizon increase.