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Lifecycle Funds and Wealth Accumulation for Retirement:Evidence for a More Conservative Asset Allocation as Retirement Approaches

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Author Info

  • Wade D. Pfau

    (National Graduate Institute for Policy Studies)

Abstract

A line of recent studies cast doubt on the efficacy of the lifecycle investment strategy, which calls for switching into a more conservative investment portfolio as retirement approaches, as a suitable way to provide for the retirement needs of workers with defined-contribution pensions. After comparing simulation outcomes for lifecycle and fixed asset allocation strategies, we determine that the lifecycle strategy can be justified even in a framework including only financial wealth. We find that investors with very reasonable amounts of risk aversion may prefer the lifecycle approach, despite the tendency for aggressive fixed allocation strategies to produce larger expected wealth.

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Bibliographic Info

Paper provided by National Graduate Institute for Policy Studies in its series GRIPS Discussion Papers with number 09-15.

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Length: 16 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:ngi:dpaper:09-15

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Related research

Keywords: lifecycle funds; target date funds; retirement planning; asset allocation;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Are retirement goals fixed or flexible?
    by Wade Pfau in Pensions, Retirement Planning, and Economics Blog on 2011-10-28 06:14:00
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Cited by:
  1. Pfau, Wade Donald, 2011. "Revisiting the Fisher and Statman Study on Market Timing," MPRA Paper 29448, University Library of Munich, Germany.
  2. Pfau, Wade Donald, 2011. "Safe Savings Rates: A New Approach to Retirement Planning over the Lifecycle," MPRA Paper 28796, University Library of Munich, Germany.
  3. Kumara, Ajantha Sisira & Pfau, Wade Donald, 2011. "Lifecycle and fixed portfolio allocation strategies: a performance comparison for emerging market countries," MPRA Paper 31389, University Library of Munich, Germany, revised 10 Jun 2011.

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