GMO examines which target date fund decisions improve retirement outcomes over a 40 year career simulation. The paper argues dynamic, valuation sensitive glidepaths and higher savings rates mattered far more than active manager selection or aggressive equity shifts, with a 1% deferral increase boosting wealth 11%.
Target Date Decisions, Decisions… Getting the Biggest Bang for the Buck
GMO
Peter Chiappinelli, Ram Thirukkonda
Research
14 Pages
Key Takeaways
Dynamic Allocation Benefits: A valuation driven “Dynamic Core” glidepath added $86,000 to retirement wealth, improving outcomes by nearly 14% versus the $629,000 baseline portfolio.
Deferral Rate Impact: Raising employee deferral rates from 6% to 7% increased retirement wealth by roughly $70,000, an 11% improvement over the baseline scenario.
Active Management Limits: Top quartile active manager selection based on Sharpe ratios reduced retirement wealth by $47,000, while median manager selection lowered outcomes by 13%.
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