Lifecycle Funds and Wealth Accumulation for Retirement: Evidence for a More Conservative Asset Allocation as Retirement Approaches
19 Pages Posted: 19 Dec 2009 Last revised: 29 Oct 2010
Date Written: October 1, 2009
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.
Keywords: lifecycle funds, target date funds, retirement planning, asset allocation
JEL Classification: D14, D81, G11, G23
Suggested Citation: Suggested Citation