Wharton Pension Research Council Working Papers

Document Type

Working Paper

Date of this Version



Today’s retirees face the daunting task of determining appropriate investment and spending strategies for their accumulated savings. Financial economists have addressed their problem using an expected utility framework. In contrast, many financial advisors rely instead on rules of thumb. We show that some of the popular rules are inconsistent with expected utility maximization, since they subject retirees to avoidable, non-market risk. We also highlight the importance of earmarking—the existence of a one-to-one correspondence between investments and future spending—and show that a natural way to implement earmarking is to create a lockbox strategy.


The published version of this Working Paper may be found in the 2008 publication: Recalibrating Retirement Spending and Saving.


retirement strategies, investing, utility maximization

Working Paper Number


Copyright/Permission Statement

All findings, interpretations, and conclusions of this paper represent the views of the authors and not those of the Wharton School or the Pension Research Council. © 2007 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.


The authors thank John Ameriks, Olivia S. Mitchell, and Stephen Zeldes for many valuable comments on an early draft of this chapter. We also wish to thank our colleagues at Financial Engines Wei Hui and Jim Shearer for their insights and support.

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Economics Commons



Date Posted: 17 December 2019