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Dynamic Lifecycle Strategies for Target Date Retirement Funds

35 Pages Posted: 18 Nov 2008 Last revised: 6 Feb 2009

Anup K. Basu

Queensland University of Technology; Financial Research Network (FIRN)

Alistair Byrne

University of Edinburgh - Business School

Michael E. Drew

Griffith University

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Date Written: February 6, 2009

Abstract

Lifecycle funds offered to retirement plan participants gradually reduce their exposure to stocks as they approach the target date of retirement. We show that such deterministic switching rules produce inferior wealth outcomes for the investor compared to strategies that dynamically alter the allocation between growth and conservative assets based on cumulative portfolio performance relative to a set target. The dynamic allocation strategies proposed in this paper exhibit almost stochastic dominance (ASD) over strategies that switch assets unidirectionally without consideration of portfolio performance.

Keywords: Lifecycle, Target Date, Pensions

JEL Classification: G23

Suggested Citation

Basu, Anup K. and Byrne, Alistair and Drew, Michael E., Dynamic Lifecycle Strategies for Target Date Retirement Funds (February 6, 2009). Available at SSRN: https://ssrn.com/abstract=1302586 or http://dx.doi.org/10.2139/ssrn.1302586

Anup Basu

Queensland University of Technology ( email )

2 George Street
Brisbane, Queensland 4000
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Alistair Byrne

University of Edinburgh - Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, EH8 9JS
United Kingdom

Michael Drew (Contact Author)

Griffith University ( email )

Brisbane, Queensland 4111
Australia

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