Lifecycle Asset Allocation

  • Lifecycle Dates, also knows as Target Dates, are designed to adjust the employees assets based on where they are in their lifecycle. 
  • Lifecycle Dates do not require employees to make an initial investment decision. 
  • Lifecycle Dates overcome employee resistance to change their investment allocation over time. 
  • Lifecycle Dates address the problem of low employee financial literacy. 
  • Lifecycle Dates give employees the chance to grow their retirement savings, rather than investing in very conservative assets, such as money market mutual funds.
  • The significant decline in 2008 of major stock market indexes has brought new interest to portfolio diversification and asset allocation strategies. While these products simplify the investment process, there is inherent risk that many employees have no knowledge about.
  • The one-size-fits-all nature of lifecycle funds fails to take into account the needs of individual participants and that they can earn higher returns by actively managing their portfolios.  
  • Lifecycle funds tend to have higher fees than ETFs or index funds. 
  • Lifecycle funds should not be the only choice available. They can be tax inefficient for those who have a way to save outside the pension plan. Some employees might want to build an asset allocation strategy designed for their own risk profile and retirement spending goals.

Click here to read professor Luis Viceira of Harvard Business School's paper on Life Cycle Funds.

Click here to go to the next topic, Customized Financial Tools, to see how customization can boost participation.