Faculty Publications

Title

An optimizing framework for the glide paths of life cycle asset allocation funds

Document Type

Article

Publication Date

1-2011

DOI

10.1080/13504850903425124

Abstract

In choosing a glide path strategy for asset allocation over their working lives, retirement savers face a trade-off between the higher expected wealth provided by strategies that maintain or increase equity holdings over time and the greater potential security offered from shifting into more conservative assets. We quantify this trade-off with an expected utility framework for our simulated distribution of target-date wealth accumulations under a variety of life cycle, fixed and contrarian glide path strategies. We find justification for the life cycle strategy for savers with very reasonable amounts of risk aversion, and we also provide guidance about utility-maximizing glide paths.