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The Calculations Are Based On "A Sustainable Spending Rate Without Simulation" by M. A. Milevsky & Ch. Robinson, FAJ Vol 61 No 6, 2005

The document outlines calculations for sustainable spending rates based on initial investment amounts and expected returns, volatility, and correlations for different asset allocations over infinite and finite time horizons. It provides alphas, betas, sustainable payout rates, and probabilities of ruin for various portfolio weights in bonds and equities. The findings can help determine optimal asset allocations that minimize risk while maintaining spending over time.

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166 views6 pages

The Calculations Are Based On "A Sustainable Spending Rate Without Simulation" by M. A. Milevsky & Ch. Robinson, FAJ Vol 61 No 6, 2005

The document outlines calculations for sustainable spending rates based on initial investment amounts and expected returns, volatility, and correlations for different asset allocations over infinite and finite time horizons. It provides alphas, betas, sustainable payout rates, and probabilities of ruin for various portfolio weights in bonds and equities. The findings can help determine optimal asset allocations that minimize risk while maintaining spending over time.

Uploaded by

morrisonkaniu8283
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as XLS, PDF, TXT or read online on Scribd
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The calculations are based on "A Sustainable Spending Rate without Simulation" by M. A. Milevsky & Ch.

Robins

Consumption per year [$] 3


Inf
Initial Investment [$] 100
60%

Payout Rate 3.00%

Expected Return 7.00% 50%


Volatility 20.00%
Median Life span 28.1 Min Volatility
Return
Volatility
Implied Mortality Rate 2.47% 40%
Min PoR Infinite
Max Sharpe Ratio
Min PoR Finite
Finite Life Probability of Ruin In
Alpha 2.6907 Sharpe Ratio
30%
Beta 0.0323 Probability of Ruin F

SPV 18.2925
Probability of Ruin 10.27% 20%

Infinite Life
Alpha 2.5
10%
Beta 0.02

SPV 33.3333
Probability of Ruin 30.00% 0%
21 20 19 18 17 16 15 14 13 12

Asset Expected Return Volatility Correlation


Bonds 4.00% 10.00% 0.20% 0.4000
Equity 8.00% 20.00% 0.4000

Weights
B 0.00% 5.00% 10.00% 15.00% 20.00%
E 100.00% 95.00% 90.00% 85.00% 80.00%

Return 8.00% 7.80% 7.60% 7.40% 7.20%


Volatility 20.00% 19.01% 18.03% 17.07% 16.13%
Min Volatility

Alpha 3.00 3.32 3.68 4.08 4.54


Beta 0.02 0.02 0.02 0.01 0.01
Probability of Ruin Infini 19.12% 17.42% 15.82% 14.32% 12.92%
Min PoR Infinite

Sharpe Ratio 0.4000 0.4104 0.4215 0.4335 0.4464


Max Sharpe Ratio

Alpha 3.00 3.19 3.38 3.58 3.79


Beta 0.03 0.03 0.03 0.03 0.03
Probability of Ruin Finit 6.75% 6.02% 5.38% 4.82% 4.33%
Min PoR Finite
A. Milevsky & Ch. Robinson, FAJ Vol 61 No 6, 2005

Infinite Life
25%

20%
Min Volatility
Return
Volatility
Min PoR Infinite
Max Sharpe Ratio
15%
Min PoR Finite
Probability of Ruin Infinite
Sharpe Ratio
Probability of Ruin Finite

10%

5%

0%
17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1

25.00% 30.00% 35.00% 40.00% 45.00% 50.00% 55.00% 60.00% 65.00%


75.00% 70.00% 65.00% 60.00% 55.00% 50.00% 45.00% 40.00% 35.00%

7.00% 6.80% 6.60% 6.40% 6.20% 6.00% 5.80% 5.60% 5.40%


15.21% 14.32% 13.47% 12.66% 11.89% 11.19% 10.56% 10.01% 9.56%

5.05 5.63 6.28 6.99 7.77 8.58 9.41 10.18 10.81


0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.00
11.65% 10.50% 9.50% 8.65% 7.98% 7.52% 7.31% 7.41% 7.92%
7.31%

0.4602 0.4747 0.4900 0.5057 0.5213 0.5362 0.5494 0.5595 0.5647


0.5647

3.99 4.19 4.39 4.57 4.74 4.88 4.99 5.07 5.11


0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02
3.91% 3.57% 3.29% 3.08% 2.93% 2.84% 2.83% 2.88% 3.02%
2.83%
70.00% 75.00% 80.00% 85.00% 90.00% 95.00% 100.00%
30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00%

5.20% 5.00% 4.80% 4.60% 4.40% 4.20% 4.00%


9.23% 9.02% 8.95% 9.02% 9.22% 9.55% 10.00%
8.95%

11.21 11.29 10.98 10.31 9.34 8.20 7.00


0.00 0.00 0.00 0.00 0.00 0.00 0.01
9.00% 10.87% 13.81% 18.10% 23.89% 31.11% 39.37%

0.5635 0.5542 0.5362 0.5100 0.4770 0.4396 0.4000


5.11 5.06 4.96 4.81 4.63 4.41 4.15
0.02 0.02 0.02 0.02 0.02 0.02 0.02
3.26% 3.61% 4.11% 4.78% 5.67% 6.84% 8.32%

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