4th Paper: What to do when markets go down.

When the markets go down, what does a retiree do? 


This paper develops Probability of Failure (POF) based decision rules that address negative market sequences for retirement de-cumulation (i.e., income).

Note that the concept of "probability of failure" has evolved in my mind since this paper was published, into a more nuanced meaning where it is now the percentage of simulation iterations that fail to reach the end of the simulation time period run. Simulation is the calculation set of many multiple iterations, e.g., 10,000, 50,000, etc. The percentage of iteration failures is not the same as probability because the total possible outcomes is essentially unknown, especially given insights from future papers. Therefore, the POF in papers really is a percentage of iteration percentages of each simulation that is run. The insights from this paper still hold under this newer nuanced view.


Probability-of-Failure-Based Decision Rules to Manage Sequence Risk in Retirement


Paper and cover photo, posted with permission from the Financial Planning AssociationJournal of Financial Planning, November 2011, by Larry R Frank Sr, John B Mitchell, and David M. Blanchett.

The Journal of Financial Planning is published by the Financial Planning Association®  (FPA®) and all information published within is the sole property of FPA.


Paper is also published in the Journal of Insurance and Financial Management  10 Mar 2022









Link to JIFM paper.



This paper was presented to the Academy of Financial Services in Denver CO, October 9th, 2010 (see Proceedings for other papers presented), and the working paper with data is also available at Social Sciences Research Network.


Also distributed in:

Microeconomics: Intertemporal Consuer Choice & Savings eJournal, Jun 6 2011

Microeconomics: Life Cycle Models & Behavioral Life Cycle Models eJournal, Jun 3 2011

Household Finance eJournal, Jun 2 2011

Pension Risk Management eJournal, Jun 2 2011

Risk Management eJournal, Jun 3 2011