Are Lifecycle Funds Getting a Bum Rap? A Comprehensive Comparison of Lifecycle versus Lifestyle Retirement Strategies from Accumulation through Withdrawal

Abstract

In an effort to determine whether recent criticism regarding the efficacy of lifecycle mutual funds is justified, this article makes a robust comparison of two glidepath strategies commonly employed in lifecycle funds, both with each other and with a range of constant allocation portfolios designed to simulate risk-based lifestyle mutual funds. A concerted effort is made to make the model design realistic, and the analysis considers the lifecycle and lifestyle strategies through the accumulation and withdrawal phases of retirement planning. The results tend to cast a favorable light on lifecycle funds and suggest that recent research critical of lifecycle funds may be too narrowly focused. By considering a robust range of accumulation and withdrawal scenarios as well as multiple measures of risk, this analysis finds that lifecycle funds may be a rational choice for a surprisingly wide spectrum of workers and retirees.

TOPICS: Retirement, mutual funds/passive investing/indexing, performance measurement