Abstracts:

Financial Services Review
Volume 3 Number 2, 1994

An Optimization Model for Scheduling Withdrawals from Tax-Deferred Retirement Accounts
(pp. 93-108) DOWNLOAD FULL-TEXT ARTICLE
Cliff T. Ragsdale, Andrew F. Seila, Philip L. Little

ABSTRACT
As a growing number of Americans reach retirement age, more and more people are facing important decisions about how to withdraw savings from tax-deferred retirement accounts (TDRAs). These decisions are complicated by the Federal Tax Code which imposes a number of rules and regulations on these withdrawals. Since these decisions collectively involve billions of dollars, the potential loss from even slightly suboptimal decision making is very large. In this paper, we present a mathematical programming model that can be used to assist retirees and/or their advisors in determining the optimal schedule of withdrawals from TDRA's.

Asset Allocation, Life Expectancy and Shortfall
(pp. 109-126) DOWNLOAD FULL-TEXT ARTICLE
Kwok Ho, Moshe Arye Milevsky, Chris Robinson

ABSTRACT
An analytical model provides a solution to the retirement problem of how to allocate investment between risky and risk-free assets. The objective is to minimize the probability that the retiree will be unable to consume at the desired level over his/her expected lifetime. The procedure incorporates mortality tables, real or nominal rates or return, initial wealth, and desired consumption levels. Numerical Examples using standard mortality table, historic rates of return on Canadian equity and treasury bills, and a range of realistic values for wealth and consumption show that equity should play a much bigger role in retirement portfolios than other writers advise.

The Impact of Mutual Fund Distributions on After-Tax Returns
(pp. 127-141) DOWNLOAD FULL-TEXT ARTICLE
William Lewis Randolph

ABSTRACT
This paper analyzes the impact of mutual fund distributions on after-tax returns. Mutual fund objective and management style are the two most important factors which determine the proportion of the fund's total return that is paid out in distributions. The larger the fund's annual distributions, the greater the amount of return lost to taxes. The correlation between portfolio turnover and after-tax return is examined and found to be low. A measure of effective portfolio turnover is developed to show the real effect of turnover on distributions. Within some mutual fund categories, the investor can increase after-tax returns by one or two percent by selecting funds with low distributions.

Coupon Resets Versus Poison Puts: The Valuation of Event Risk Provisions in Corporate Debt
(pp. 143-156) DOWNLOAD FULL-TEXT ARTICLE
Joseph A. Fields, David S. Kidwell, Linda S. Klein

ABSTRACT
This paper examines the valuation of the two major types of event risk indenture provisions, poison puts and coupon resets, on the debt of industrial companies. In contrast with earlier work by Crabbe (1991), we find that protection proved by poison put type of covenants is not valued by investors. The inclusion of coupon reset provisions, however, lowers the yield spread of new issued industrial bonds by 32 basis points. The yields on bonds with low credit quality ratings are reduced by including coupon reset provisions in the bond indentures.

A Practitioner's Perspective: Comments on "Asset Allocation, Life Expectancy and Shortfall"
(pp. 157-158) DOWNLOAD FULL-TEXT ARTICLE
Barbara S Poole