Target Date funds, or lifecycle funds, are becoming widely used as a default choice in Defined Contribution plans in the US markets as well as other countries. Dogmatically following the lifecycle investment theory, Target Date funds comes with agency problems, such as excessive management fees and a history of delivering disappointing performance. Challenging the current investment strategy, the thesis addresses a missing piece of the DC design. DC lifecycle funds are designed without knowing a target wealth which is crucially important for individuals’ retirement plan and determines how one should invest. This thesis designs simple investment alternatives which are compared with the conventional lifecycle investment model. A simulation study is conducted to evaluate the various strategies. The simulation results clearly show that augmented designed strategies that respond to the final target and cumulated wealth constantly outperform the traditional strategy.

Netspar, Network for Studies on Pensions, Aging and Retirement, is een denktank en kennisnetwerk. Netspar is gericht op een goed geïnformeerd pensioendebat.

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