Saving for retirement while having more nights with peaceful sleep

Comparison of lifecycle and lifestyle strategies from expected utility perspective

Authors

  • Rosita P. Chang Shidler College of Business, University of Hawaii at Manoa
  • David Hunter Shidler College of Business, University of Hawaii at Manoa
  • Qianqiu Liu Shidler College of Business, University of Hawaii at Manoa
  • Helen Saar b Udvar-Hazy School of Business, Dixie State University

DOI:

https://doi.org/10.61190/fsr.v23i2.3132

Keywords:

Retirement saving, Target-date funds, Life cycle investing

Abstract

We evaluate the fit of target-date funds (TDFs) as the main retirement savings instrument for the utility-maximizing investor who becomes more risk averse as she gets older. Using bootstrapping simulations, we show that TDFs can provide higher expected utility than the alternative lifestyle strategies. With loss aversion incorporated in the model, we still find that the optimal lifecycle strategy over time leads to higher expected utility than the best lifestyle strategy. Therefore, TDFs are preferable to the utility-maximizing investor. However, lifecycle strategies are not one-size-fits-all solution and investor’s risk tolerance has to be considered when selecting TDF funds.

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Published

2014-06-01

How to Cite

Chang, R. P., Hunter, D., Liu, Q., & Saar, H. (2014). Saving for retirement while having more nights with peaceful sleep: Comparison of lifecycle and lifestyle strategies from expected utility perspective. Financial Services Review, 23(2), 169 –188. https://doi.org/10.61190/fsr.v23i2.3132

Issue

Vol. 23 No. 2 (2014): Summer 2014

Section

New Original Submission

License

Copyright (c) 2014 Academy of Financial Services

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