Essays on Advice on a Sustainable Retirement Investment & Spending Plan Case Study

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The paper "Advice on a Sustainable Retirement Investment & Spending Plan" is a perfect example of a micro and macroeconomic case study.   The purpose of this advice is to present the best option for an investment and spending plan for our client, who is presently 63 years of age and has a retirement fund of $450,000 with which to work so that he can be reasonably confident of having a comfortable yearly income for the rest of his life. As the client no doubt understands, there is a bit of uncertainty in calculating a plan like this because the lifespan over which it will have to be applied and the future rates of returns on investments cannot be known.

Therefore the plan is presented as a probability; the calculations required necessarily result in a risk factor of failure of the plan – that is to say, the chance that the client will run out of money before the end of his life – which is expressed as a percentage, but it may be helpful for the client to consider this from the opposite, positive point of view, the probability of success. Since we do not have current income information for the client, the assumption is made that he wishes to retire now, and will not be receiving any income apart from the returns on any investments made with his existing retirement fund.

The majority of Australians surveyed feel a minimum retirement income of $30,000 is necessary for a comfortable lifestyle, and in the client’ s age group, slightly more than half of those surveyed feel an income of $40,000 or more is required. At $40,000 a year, the client’ s nest egg will last 11.25 years; at $50,000 a year, it will only last for nine years.

Our client, however, can expect a retirement lifespan of between 14 and 43 years with an average life expectancy of slightly more than 20 years and a reasonable lifespan for planning purposes of 30 years (see Technical Note), so obviously some earnings must be generated from the retirement fund. The absolute upper limit of the probability of ruin – that the fund will be depleted before the end of the client’ s life – is 25%, and so our task is to present investment and spending options that: Provide an annual income of $40,000, Cover a period of 30 years or longer, and Have a risk of ruin of less than 25%, preferably very much less.


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ING Australia. ‘MoneyForLife’, website, 2010, retrieved 2 May 2010, .

Kotzé, A.A. ‘Stock Price Volatility: A Primer’, Doornfontein, S. Africa: Financial Chaos Theory, 2005, retrieved 2 May 2010, .

Milevsky, M. A. ‘Sustainable Spending at Retirement’ in The Calculus of Retirement Income, Cambridge University Press, 2006, pp. 185-214.

Milevsky, M.A., and Robinson, C. ‘A Sustainable Spending Rate without Simulation’, Financial Analysts Journal, vol. 61, no. 6, 2006, pp. 89-100.

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