Optimizing Eleanor's Retirement for Peace of Mind
Eleanor is overwhelmed by the responsibility of managing her $1.8 million Traditional IRA and $450,000 in taxable accounts. She is primarily concerned with maintaining a reliable income stream to cover her living expenses of $75,000 per year, while also preserving capital and leaving a legacy for her grandchildren. Being risk-averse, she struggles to balance the need for investment growth with her desire for security.
We used the Expected Utility Calculator to model different investment portfolios and their potential outcomes, factoring in Eleanor's stated risk aversion. By adjusting the risk aversion coefficient, we determined that a portfolio with 40% equities and 60% bonds provided the highest expected utility, offering a balance between growth and downside protection. This approach allowed us to project a sustainable withdrawal rate while minimizing the probability of outliving her assets.
We input Eleanor's estimated lifespan, initial asset values, and income requirements into the Expected Utility Calculator. Then, we adjusted the risk aversion coefficient until we found a portfolio allocation that maximized her utility score, reflecting her comfort level with potential investment volatility.
$35,000 increase in projected annual income compared to her initial, overly conservative strategy, while also reducing the risk of portfolio depletion by 15% within 30 years.
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