Portfolio decumulation and risk management

Abstract

A decumulation management system provides guidance for decumulation of a portfolio over a decumulation period of time. A spending amount is withdrawn from the portfolio during the decumulation period of time. The decumulation management system determines the probability of successfully withdrawing the spending amount during the remaining decumulation period and establishes thresholds for adjusting the spending amount and a risk profile of the portfolio based on the performance of the portfolio during the decumulation. When the portfolio value decreases below the thresholds, the spending amount may be reduced, and when the portfolio value exceeds the thresholds, the spending amount may be increased and the risk profile of the portfolio is decreased. The decumulation management system may provide recommendations based on these thresholds, or may automatically manage withdrawals of the spending amount and investments to match the risk profile.

What is claimed is: 
     
         1 . A computer-implemented method for managing asset decumulation in a portfolio, the method comprising:
 establishing, by a decumulation management system executing on a processor, a plurality of spending levels for decumulation of the portfolio over a decumulation period of time, the plurality of spending levels including sequentially increasing spending amounts indicating different constant values to be withdrawn from the portfolio at designated times during the decumulation period of time;   generating, using the processor, a plurality of spending bands for the plurality of spending levels, one spending band for one spending level;   generating funded ratio bands based on the plurality of spending bands, the funded ratio bands measuring a ratio of assets in the portfolio to liabilities;   converting the funded ratio bands to corresponding non-overlapping asset bands;   selecting a current spending amount from one of the established plurality of spending levels based on an initial portfolio value; and   simulating, using the decumulation management system, a decumulation of the portfolio over a duration of the decumulation period of time by:   monitoring, by the processor, a portfolio value during the decumulation of the portfolio as the current spending amount is withdrawn from the portfolio at designated times by automatically selling a portion of assets in the portfolio; and   graphically illustrating in a graphical interface a trajectory of the decumulation of the portfolio over the decumulation period of time by overlaying the current spending amount over the plurality of spending bends and the non-overlapping asset bands.   
     
     
         2 . The computer-implemented method of  claim 1 , wherein the simulating further comprises:
 determining that the portfolio value is below a lower threshold portfolio value of an asset band that corresponds to the current spending amount; and   decreasing the current spending amount to a lower spending amount that corresponds to a lower spending level from the established plurality of spending levels.   
     
     
         3 . The computer-implemented method of  claim 1 , wherein the simulating further comprises:
 determining that the portfolio value is above an upper threshold portfolio value of an asset band that corresponds to the current spending amount; and   increasing the current spending amount to a higher spending amount that corresponds to a higher spending level from the established plurality of spending levels, the higher spending amount associated with a higher asset band.   
     
     
         4 . The computer-implemented method of  claim 1 , wherein the funded ratio bands are determined using iterative Monte-Carlo simulations and are based on expectations of long-term risk and return. 
     
     
         5 . The computer-implemented method of  claim 1 , wherein the liabilities in the portfolio measure a present value of future spending. 
     
     
         6 . The computer-implemented method of  claim 1 , further comprising:
 determining that the portfolio value is above a lower threshold portfolio value and below an upper threshold portfolio value of an asset band that includes the current spending amount; and   maintaining the current spending amount.   
     
     
         7 . The computer-implemented method of  claim 1 , wherein each spending band corresponds to a probability of withdrawing a spending amount associated with a spending level corresponding to the spending band from the portfolio for a duration of the decumulation period of time and without exceeding the portfolio value prior to an end of the decumulation period of time. 
     
     
         8 . The computer-implemented method of  claim 1 , further comprising:
 receiving, using a second user interface of the decumulation management system, a desired payout amount, the portfolio value, and a decumulation time period, and   generating a result of the simulation as a single graph in the graphical interface, the single graph illustrating a relationship among the desired payout amount, the plurality of spending levels, the portfolio value and the asset bands over the decumulation time period.   
     
     
         9 . A system for managing asset decumulation in a portfolio, the system comprising:
 one or more processors configured to execute computer program code, wherein the processor executing the computer program code performs actions of:
 receiving, at a decumulation management system implemented on a processor, a spending amount for decumulation of the portfolio over a decumulation period of time, the spending amount indicating an amount withdrawn from the portfolio at designated times during the decumulating period of time; 
 generating a plurality of spending bands for a plurality of spending levels, one spending band for one spending level; 
 generating a plurality of funded ratio bands based on the plurality of spending bands, the plurality of funded ratio bands measuring a ratio of assets in the portfolio to liabilities; 
 converting the plurality of funded ratio bands to corresponding asset bands; 
 establishing a plurality of risk bands, wherein each risk band represents investment of the portfolio in a different mix of assets; 
 mapping the portfolio into a risk band in the plurality of risk bands; and 
 simulating, using the decumulation management system, a decumulation of the portfolio over the decumulation period of time by:
 withdrawing from the portfolio at the designated times the spending amount; 
 monitoring a portfolio value of the portfolio at the risk band of the plurality of risk bands as the spending amount is withdrawn from the portfolio; 
 detecting that the portfolio value is outside threshold portfolio values for a corresponding asset band; 
 modifying the risk band to another risk band from the plurality of risk bands, wherein the other risk band has a different mix of assets than the risk band and corresponds to a different volatility than the risk band; 
 modifying assets in the portfolio to obtain assets in the other risk band; and 
 overlaying the spending amount over the plurality of spending levels, the asset bands and the plurality of risk bands, wherein a trajectory of the overlaid selected spending amount is a graphical representation of a portfolio performance over the decumulation period. 
 
   
     
     
         10 . The system of  claim 9 , where establishing the plurality of risk bands further comprises:
 determining a maximum risk band in the plurality of risk bands that corresponds to first asset values that meet a maximum volatility with a first preconfigured confidence;   determining a minimum risk band in the plurality of risk bands that corresponds to a second asset values that meet a minimum volatility with a second preconfigured confidence; and   determining remaining risk bands in the plurality of risk bands from the minimum risk band to the maximum risk band by:
 interpolating between the minimum volatility with the second preconfigured confidence and the maximum volatility with a preconfigured confidence; and 
 identifying a risk band for the remaining risk bands with a mix of assets that corresponds to a volatility and the preconfigured confidence at each interpolation. 
   
     
     
         11 . The system of  claim 9 , wherein the processor executing the computer program code further performs the actions of:
 determining a minimum risk band and a maximum risk band in the plurality of risk bands using a Monte-Carlo simulation; and   determining intermediate risk bands by interpolating from the minimum risk band to the maximum risk band.   
     
     
         12 . The system of  claim 9 , wherein the other risk band has a lower volatility than the risk band; and
 wherein the modifying the assets in the portfolio obtains the assets that correspond to the lower volatility.   
     
     
         13 . The system of  claim 9 , wherein the other risk band has a higher volatility than the risk band; and
 wherein the modifying the assets in the portfolio obtains the assets that correspond to the higher volatility.   
     
     
         14 . The system of  claim 9 , wherein the mix of assets at each risk band are a corresponding basket of assets targeting volatility of the portfolio. 
     
     
         15 . The system of  claim 9 , wherein the simulating further comprises:
 determining that the portfolio value is below a lower threshold portfolio value of an asset band that includes the spending amount; and   decreasing the spending amount to a lower spending amount that corresponds to a lower spending level from the established plurality of spending levels.   
     
     
         16 . The system of  claim 9 , wherein the simulating further comprises:
 determining that the portfolio value is above an upper threshold portfolio value of an asset band that includes the spending amount; and   increasing the spending amount to a higher spending amount that corresponds to a higher spending level from the established plurality of spending levels.   
     
     
         17 . The system of  claim 9 , wherein the liabilities in the portfolio measure a present value of future spending. 
     
     
         18 . The system of  claim 9 , wherein each spending band corresponds to a probability of withdrawing a spending amount corresponding to a spending level from the portfolio for a duration of the decumulation period of time and without exceeding the portfolio value prior to an end of the decumulation period of time. 
     
     
         19 . A computer-implemented method for simulating asset decumulation in a portfolio, the method comprising:
 receiving, by a decumulation management system implemented on a processor, a spending amount, the spending amount indicating an amount withdrawn from the portfolio at designated times during a decumulating period of time;   generating a plurality of spending bands for a plurality of spending levels, one spending band for one spending level;   generating a plurality of funded ratio bands based on the plurality of spending bands, the plurality of funded ratio bands measuring a ratio of assets in the portfolio to liabilities;   converting the plurality of funded ratio bands to asset bands;   establishing a plurality of risk bands, wherein each risk band represents investment of the portfolio in a different mix of assets;   simulating, using the decumulation management system, a decumulation of the portfolio over the decumulation period of time by:
 withdrawing from the portfolio at the designated times the spending amount; 
 monitoring a portfolio value of the portfolio at a risk band of the plurality of risk bands; 
 detecting that the portfolio value is outside threshold portfolio values for a corresponding asset band; 
 modifying the risk band to another risk band from the plurality of risk bands, wherein the other risk band has a different mix of assets than the risk band and corresponds to a different volatility than the risk band; and 
 modifying assets in the portfolio to assets in the other risk band. 
   
     
     
         20 . The computer-implemented method of  claim 19 , further comprising:
 overlaying the spending amount over the plurality of spending levels, the asset bands and the risk bands, wherein a trajectory of the overlaid spending amount is a graphical representation of a portfolio performance over the decumulation period.