Determining the "glide path" for target-date funds
DOI:
https://doi.org/10.61190/fsr.v20i2.4696Keywords:
Life-cycle hypothesis, Retirement, Time horizon, Asset allocation, Target date fundsAbstract
On June 16, 2010, the SEC proposed new guidelines for target date funds to follow regarding the explanation of glide paths. This paper presents a model that determines a "glide path" for individuals and target date funds. At some point in time individuals with diminishing human capital are no longer primarily concerned with maximizing wealth. Rather, their primary goal is to obtain a target retirement wealth level to sustain a constant level of consumption during retirement. A critical wealth level is defined that combined with a retirement goal provide a rational approach for reducing risky assets as an individual approaches retirement.
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