An Optimizing Framework for the Glide Paths of Lifecycle Asset Allocation Funds
AbstractIn choosing a glide path strategy for asset allocation over their working lives, retirement savers face a tradeoff between the higher expected wealth provided by strategies that maintain or increase equity holdings over time, against the greater potential security offered from shifting into more conservative assets. We quantify this tradeoff with an expected utility framework for our simulated distribution of target date wealth accumulations under a variety of lifecycle, fixed, and contrarian glide path strategies. We find justification for the lifecycle strategy for savers with very reasonable amounts of risk aversion, and we also provide guidance about utility-maximizing glide paths.
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Bibliographic InfoPaper provided by National Graduate Institute for Policy Studies in its series GRIPS Discussion Papers with number 09-16.
Length: 7 pages
Date of creation: Oct 2009
Date of revision:
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Web page: http://r-center.grips.ac.jp/DiscussionPapers
More information through EDIRC
lifecycle; target date; retirement planning; glide paths;
Other versions of this item:
- Wade Pfau, 2011. "An optimizing framework for the glide paths of life cycle asset allocation funds," Applied Economics Letters, Taylor & Francis Journals, vol. 18(1), pages 55-58.
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-11 (All new papers)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Should Retirees Increase Stock Allocations as they get Older and Older?
by Wade Pfau in Pensions, Retirement Planning, and Economics Blog on 2011-07-21 02:38:00
- "Dynamic Allocation Strategies for Distribution Portfolios: Determining the Optimal Distribution Glide Path"
by Wade Pfau in Pensions, Retirement Planning, and Economics Blog on 2011-07-17 23:58:00
- 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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