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The actual returns of the S&P since 1928 are in the attached file. The Assignment Your team works at a financial advisory firm and is asked to work with a client, Ms Christie, who has retired and has 400K in liquid assets.   To maintain a semblance of her prior lifestyle she needs to draw down 50K per year to complement social security and other pension payments.    a) Based on actual data (use the random function to select different starting years), determine the average number of years she can continue to draw down 50K before she runs out of money.   b) Second, since your client understands distribution (she took this course) and comes from a family of septagenarians, she wants to know how much she can draw down if she expects to live to 78.  She is 65 now. c) finally, any other advice you would like to offer

FAQ question:  wont the answer be different since it will change when i open it answer: i expect that using the random function even a couple of dozen times (since there is only 90 odd years of history) the average will be relatively stable.   again i care about the analysis and model and any out of the box thinking you can bring to the issue please dont hesitate if you have any other questions question: how can we set the formuala to get a non-negative number? answer: the random function is used to randomize the retirement year back in history.  so a random function may result in your retiring in 1939 or 1972 or 1956 etc.. we need to do a simulation.  what happens with your savings if you had invested in the market and the market returned whatever it actually did that year (data provided) figure out how frequently she might be broke before she dies? also see how much the frequency of going broke drops, if the cash spent is reduced hope this helps.   this is a very realistic and non-academic assignment.  The question is how does one count the number of years till the money goes negative. Answer: please keep in mind that the money invested on the first year of retirement earns a return based on the return of that year in the market.  so unless one is unlucky in retiring when thie market is about to crash, the one should be able to make do for many years.  a simple example is that if the market returned 10% the year the person retired, then the market paid the retiree $40K on a 400K investment.  so even if the drawdown is $50K, it should go a longish while. the purpose of the exercise is to make it vividly clear how much of financial security is random Question: I am wondering for the answer, do we just pick any year to work out an answer or does the answer need to account for all possibilities (starting year ranging from 1928--1998)?  Answer: One has to account for more than one year.  One can do it for all years (since the sample is not too big) OR use the random function for a few dozen years and take the average of that.. Again, please don't be scared about not having the 'right' answer.   In life there is rarely such a thing.  I look forward to your best thinking and work, maybe incorporating any tools and material we covered. 

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