Retirees face great risk when planning for retirement. They can prematurely run out of funds due to the volatile equities and bond markets. The ability to accurately measure the future risk of a portfolio will tremendously benefit retirees in securing their financial future.
This thesis aims to use valuation ratios, such as Shiller P/Es and dividend yields, to forecast the ending balance of retirement portfolios over a 30 year horizon. Historical data was utilized to generate models that could predict when a retiree would prematurely run out of funds, and a range of models were developed for a wide array of portfolio allocations and withdrawal habits.
Valuation ratios were found to have predictive capabilities with retirement portfolio balance. Utilization of valuation ratios could benefit retirees with retirement planning by hinting at the performance potential of the markets.
