RISK TOLERANCE, ASSET ALLOCATION, AND PLANNING ASSUMPTIONS FOR MASS-AFFLUENT HOUSEHOLDS: A GOALS-BASED FRAMEWORK WITH MONTE CARLO EVIDENCE ON DECUMULATION STRATEGIES

Abstract

Households with $100,000 to $1 million in investable assets face complex, multigoal planning problems but are typically served by standardised processes built on a single risk score and a static allocation. This paper develops a practitioner framework for this massaffluent segment that separates risk tolerance, risk capacity and required return and combines them by an explicit rule, and that constructs portfolios as goal-specific sleeves. It then tests the most common decumulation implementation of goals-based investing—the three-bucket strategy—against static allocations and a rising-equity glidepath in a 10,000-path, thirty-year Monte Carlo simulation of a $750,000 portfolio with a 4.5 per cent inflation-adjusted withdrawal. With explicit refill rules, the bucket strategy reduces thirty-year success from 63.9 to 57.3 per cent relative to a static 60/40 and, in paths with the worst decile of early equity returns, from 12.7 to 4.0 per cent. A rising glidepath raises success in those paths to 26.6 per cent. The results hold under lower return assumptions. Bucketing’s benefit, if any, must therefore be behavioural; firms should manage the underlying allocation path explicitly and use buckets, where helpful, as a presentation device.