The Floor-Leverage Rule for Retirement

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Financial Analysts Journal
September/October 2013 | Vol. 69 | No. 5 | 16 pages
Source: CFA Institute
Jason S. Scott John G. Watson

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The floor-leverage rule is a spending and investment strategy designed for retirees who can tolerate investment risk but insist on sustainable spending. The rule calls for purchasing a spending guarantee with 85% of wealth and investing the remaining 15% in equities with 3× leverage. Surprisingly, this leverage is a tool for managing risk. The authors compare the rule with some popular strategies, illustrate it for a variety of retiree preferences, and evaluate its historical performance.

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