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Assessing the Performance of Life-Cycle Portfolio Allocation Strategies for Retirement Saving: A Simulation StudyBenjamin BridgesU.S. Social Security Administration Robert GesumariaGovernment of the United States of America - Office of Research, Evaluation and Statistics Michael V. LeonesioSocial Security Administration - Office of Research, Evaluation and Statistics February 3, 2010 Social Security Bulletin, Vol. 70, No. 1, pp. 23-43, 2010 Abstract: This article examines the performance of four life-cycle portfolio allocation strategies through stochastic simulation based on observed U.S. asset returns during 1926-2008. Annual worker contributions to retirement savings accounts are based on the actual lifetime earnings histories maintained by the Social Security Administration for 12,871 workers born during 1915-1942. Each strategy’s performance is evaluated primarily on the basis of the distributions of internal rates of return on investments calculated at the time of retirement. Comparisons are made with the performance of four other investment strategies that vary in terms of their exposure to stock and bond market risk. Life-cycle plans with larger portfolio weights assigned to equities have higher average returns, but those gains come at the cost of increased risk of infrequent bad outcomes.
Number of Pages in PDF File: 21 Keywords: retirement planning, retirement saving, life-cycle funds, personal investment JEL Classification: D14, G11, J26 Accepted Paper SeriesDate posted: February 4, 2010Suggested CitationContact Information
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