Ruin in Retirement: Running Out of Money in Drawdown Programs

Abstract

This paper analyses income drawdown programs where individuals choose a starting level of income and consumption growth levels so that they are certain to run out of money at some age. We compare the consumption in such a drawdown program with the level of consumption from an annuity. Our analysis shows that for individuals to prefer the drawdown program to an annuity because of higher initial income levels, they must be willing to forego all consumption for a majority of their expected period of retirement.