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

See all articles by Wade D. Pfau

Wade D. Pfau

The American College for Financial Services; Retirement Researcher

Date Written: October 1, 2009

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.

Keywords: lifecycle funds, target date funds, retirement planning, asset allocation

JEL Classification: D14, D81, G11, G23

Suggested Citation

Pfau, Wade D., Lifecycle Funds and Wealth Accumulation for Retirement: Evidence for a More Conservative Asset Allocation as Retirement Approaches (October 1, 2009). Financial Services Review, Vol. 19, No. 1, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1488671 or http://dx.doi.org/10.2139/ssrn.1488671

Wade D. Pfau (Contact Author)

The American College for Financial Services ( email )

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HOME PAGE: http://www.retirementresearcher.com

Retirement Researcher ( email )

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Vienna, VA 22182
United States

HOME PAGE: http://www.retirementresearcher.com

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