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Bridge over ocean
1 September 2013 Financial Analysts Journal Volume 69, Issue 5

The Floor-Leverage Rule for Retirement

  1. Jason S. Scott
  2. John G. Watson

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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