Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice

Research

29 Pages

This paper challenges two central tenets of lifecycle investing — savers should diversify across stocks and bonds and the young should invest more heavily in stocks than the old. Their analysis finds an even mix of 50% domestic stocks and 50% international stocks held throughout one’s lifetime vastly outperforms age-based, stock-bond strategies in building wealth, supporting retirement consumption, preserving capital, and generating bequests.

You can listen to one of the authors discuss the paper on The Rational Reminder podcast [Apple | Spotify | YouTube].

Key Takeaways

Design flaws in lifecycle funds: The standard glide path reducing equity exposure with age is not well-grounded in economic theory or individual risk profiles.
Misaligned incentives: Plan sponsors and advisors often favor simplicity or regulatory ease over participant benefit, perpetuating suboptimal defaults.
Reform opportunities: Better lifecycle advice could incorporate personalization, longevity risk, and labor income variability to improve retirement outcomes.
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