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Presented At
NYU Optimal Retirement Withdrawal Strategy Conference May 2008 |
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| Optimal Retirement Withdrawal Strategy |
| A Critique of Monte Carlo Retirement Calculators |
| The Use of Historical Averages |
The Optimal Retirement Planner
The Optimal Retirement Planner (ORP) is a retirement calculator that optimally schedules retirement savings and withdrawals to maximize the amount of money available for spending throughout retirement.ORP is an Internet based, Decision Support System (DSS) built using the tools and techniques of Operations Research. A retirement DSS has these properities:
| Facts | Choices |
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| Current Age/Spouse's Age | Total annual retirement savings |
| Account Balances | Age to retire |
| Limitations on tax-advantaged contributions | Age to start Social Security Benefits. |
| Value of illiquid asset (home) | Age to sell illiquid asset |
| Pension income | Age to take out a reverse mortgage |
| Social Security benefits | Part time work after retirement |
| Size of estate. |
| Computed guidance for retirement plan management | |
|---|---|
| Schedule of contributions to retirement savings accounts | |
| Annual after-tax income | |
| Schedule of withdrawals from retirement savings accounts | |
| Schedule of IRA to Roth IRA rollovers | |
| Schedule of IRA to after-tax account distributions | |
| Annual personal income tax payments |
The process of using ORP is to:
- Set the facts.
- Make the choices.
- Make the run and review the guidence (results).
- Modify the choices and run again (sensitivity analysis).
ORP is built on an industrial strength linear programming optimizer running on an Internet server.
Definition:
Optimization
- a mathematical technique for finding the
maximum of a function of many variables subject to a set of constraints.
To put it another way;
optimization is the selecting of a small
set of activities, from a very large universe of possible activities,
that makes the most money without breaking the rules
ORP's optimizer computes the maximum amount of money available for spending over the
entire time span of retirement.
The Big Picture of Retirement Financial Planning
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is a retirement planner like no other!
ORP maximizes retirement cash flow from investment returns and drawing down the account's capital to a given estate level at the end of the plan. ORP's linear programming optimizer maximizes the after-tax cash available for spending during retirement by modeling compounding investment returns, inflation, income taxes and minimum withdrawal requirements.
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1961-1981 Max out that 401K! |
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1943-1960 Early Retirement? |
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1925-1942 Into Retirement. |
