Due to the deterioration of guaranteed retirement income through defined benefit plans, the uncertainty of the future of social security, and increasing life expectancy, retirement planning is now more important than ever. The purpose of this paper is to determine how much an individual needs in order to retire, and to compare the results of different asset allocation strategies. There are many factors which we must account for in order to determine this number. These factors include the pre-retirement level of income, expected retirement age, retirement duration, buying an annuity vs. managing one’s own funds, and the allocation of funds. This study will use stochastic projections to model the amount of money available at retirement and the amount needed to buy an annuity which can maintain the desired standard of living. Furthermore, the effects of length of employment and the timing of asset allocation will also be analyzed. In order to retire comfortably, it is essential to define retirement goals and make plans to achieve them. Choosing the correct asset allocation strategy could mean the difference between an enjoyable and an underfunded retirement.
