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Life cycle models in target date glide path design
Ilia Lanski
Solutions Analyst
Raj Paramaguru
Solutions Portfolio Manager
Wesley Phoa
Solutions Portfolio Manager
Yung Wang
Quantitative Engineer
Brett Hammond
Research Leader

 


Originally developed in academia, life cycle models now have important real-world applications to the design of target date funds. In this paper, Capital Group researchers discuss implications of these models for target date management.

Key takeaways:

  • Target date models in reality are “one size fits most.” By helping to define “most,” life cycle models can inform retirement plan design, participation communication and investment decision-making.

  • A target date glide path shares common assumptions with the life cycle model regarding investor characteristics and capital markets assumptions.

  • Asset allocations should be flexible between stocks and bonds but balanced appropriately to ensure the glide path delivers the required pattern of investment returns while managing risk.

  • Life cycle models can be used to calibrate target date models — we take an interactive, iterative approach to addressing problems like transitory and permanent “income shocks” that can derail investors.
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Ilia Lanski is a solutions analyst with 23 years of industry experience (as of 12/31/22). He holds a PhD in theoretical physics from the Budker Institute of Nuclear Physics  and a master’s degree in physics from Novosibirsk State University, both in Russia.  

Raj Paramaguru is a solutions portfolio manager with 26 years of industry experience (as of 12/31/2023). He holds an MBA with honors from University of Chicago’s Booth School of Business, a master’s degree in industrial engineering from the University of Cincinnati and a bachelor’s degree in mechanical engineering from Anna University, India. He also holds the Chartered Financial Analyst® designation.

Wesley Phoa is a solutions portfolio manager with 30 years of industry experience (as of 12/31/2023). He holds a PhD in pure mathematics from Trinity College at the University of Cambridge and a bachelor’s degree with honors from the Australian National University.

Yung Wang is a quantitative engineer with 14 years of industry experience as of 12/31/21. He holds an MBA from University of Chicago and a bachelor's degree in computer science from National Taiwan University.

Brett Hammond is a research leader with 27 years of industry experience as of 12/31/21. He holds a PhD from the Massachusetts Institute of Technology and a bachelor's degree in economics and political science from the University of California, Santa Cruz.

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