By: Don Ezra -
Consider this scenario. You’ve just turned 65. You’ve just retired. Now, of course, you have to replace your paycheck with a new source of income. But that’s OK, because you’ve saved $1,000,000 in your “pension pot.” (Congratulations!) The thing is: you don’t know how much you can draw each year from your pension pot. If you knew how long you were going to live, and what investment return you’d earn, then you can do the calculation (or go to an expert who can). But those are two things you don’t know. Together, they make this “the nastiest, hardest problem in finance,” according to Nobel Prize Winner William Sharpe. So you’re not alone in wondering what to do!