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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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  • 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.

Suggested Citation

  • Wade D. Pfau, 2009. "Lifecycle Funds and Wealth Accumulation for Retirement:Evidence for a More Conservative Asset Allocation as Retirement Approaches," GRIPS Discussion Papers 09-15, National Graduate Institute for Policy Studies.
    • Handle: RePEc:ngi:dpaper:09-15
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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 11:14:00

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    Cited by:

    1. William F. Johnson & Ha-Chin Yi, 2017. "Do target date mutual funds meet their targets?," Journal of Asset Management, Palgrave Macmillan, vol. 18(7), pages 566-579, December.
    2. Carlos Alberto Soto Quintero & Alejandra Arboleda Bedoya & Juan Carlos Gutiérrez Betancur, 2012. "Trayectorias óptimas de inversión durante el ciclo de vida en un sistema de multifondos," Documentos de Trabajo CIEF 10713, Universidad EAFIT.
    3. Khemka, Gaurav & Steffensen, Mogens & Warren, Geoffrey J., 2021. "How sub-optimal are age-based life-cycle investment products?," International Review of Financial Analysis, Elsevier, vol. 73(C).
    4. Pfau, Wade Donald, 2011. "Safe Savings Rates: A New Approach to Retirement Planning over the Lifecycle," MPRA Paper 28796, University Library of Munich, Germany.
    5. 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.
    6. Pfau, Wade Donald, 2011. "Revisiting the Fisher and Statman Study on Market Timing," MPRA Paper 29448, University Library of Munich, Germany.

    More about this item

    Keywords

    lifecycle funds; target date funds; retirement planning; asset allocation;
    All these keywords.

    JEL classification:

    • 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

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