The answer for retirees is not the risk-return ratio

Paddy McCrudden  |  Magellan Asset Management  |  25 August 2021

When accumulating assets, investors typically seek to maximise their account balance around the time they retire, while managing the associated risks. This leads to a focus on the risk-return ratio and mean-variance optimisation. But in retirement these goals shift, and investors seek to convert their savings into a sustainable salary replacement with access to growing capital. The metric for success must also shift to accommodate these trade-offs. Retirement Utility, which generalizes the Members Default Utility Function, provides such a metric, reflecting investors’...

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