Dynamic Lifecycle Strategies for Target Date Retirement Funds
Posted: 21 May 2019
Date Written: February 6, 2009
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: Suggested Citation