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Abstract

The traditional model of retirement planning centers around the accumulation of a portfolio dur- ing the earning years followed by a drawdown from this portfolio after retirement. This drawdown is intended to support a desired retirement lifestyle, and central to a successful retirement is the sustain- ability of the retirement portfolio over the expected planning horizon. We define portfolio success to mean the ability of the retirement portfolio to sustain a desired retirement lifestyle over the desired planning horizon, and use simulations and logistic regressions to evaluate the impact of asset alloca- tion, the profile of portfolio returns, the withdrawal rate, and the length of the planning horizon on portfolio success. Our analysis shows that the likelihood of success is inversely related to withdrawal rate, retirement horizon, and portfolio risk increase, and directly related to portfolio return, allocation aggressiveness, and early experience. The analysis also indicates that portfolio success is highly sen- sitive to withdrawal rates, with conservative allocations exhibiting greater variation in portfolio out- comes and aggressive allocations providing more dependable portfolio outcomes for retirees who desire higher withdrawal rates.