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sequence of returns risk in the lifecycle model

savinglabor@savinglabor
1 Post
#1 · January 2, 2023, 4:05 pm

Do you know if sequence of returns risk (SORR) and the tools to combat it (rising equity glidepath, bond tent, borrowing in retirement) can be explained my the Merton lifecycle model? E.g. here.

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Last edited on January 2, 2023, 4:05 pm by savinglabor
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earlyretirementnow.com
earlyretirementnow.com@earlyretirementnowcom
61 Posts
#2 · January 2, 2023, 5:13 pm

Thanks for the link. If you interpret your wage income as an implicit long bond and your retirement as an implicit short bond, then the bond tent (glidepath to retirement and reverse path during retirement) will be optimal.

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