A Comprehensive Life-cycle Fund Design for the U.S. Pension System

January 2025

Author

Pension Research & Consulting

Description

This study aims to design a comprehensive life-cycle fund model in an intuitive way by including human capital risk, social security benefits, longevity risk, bequest motive, parameter uncertainty, and different types of annuities. We also conduct a detailed sensitivity analysis for the optimal portfolio allocation in life-cycle funds in terms of risk aversion coefficients, discount rates, contribution rates, permanent shocks to labor income, capital market assumptions, correlation between human capital and stock returns, social security benefits, bequest motive, and parameter uncertainty. Finally, we compare the performance of our optimized life-cycle funds with different investment strategies for the pre- and post-retirement periods.

Materials

A Comprehensive Life-cycle Fund Design for the U.S. Pension System

The researchers’ deepest gratitude goes to those without whose efforts this project could not have come to fruition: the Project Oversight Group for their diligent work overseeing, reviewing and editing this report for accuracy and relevance.

Project Oversight Group members:
Matt Brady, FSA
David Cantor, ASA, EA
Scott Cederburg, CFA, Ph.D.
R. Evan Inglis, FSA, CFA, FCA, MAAA
Jay Lee, ASA, MAAA
Steve Marco, ASA, CERA, MAAA
Grant Martin, FSA, CERA, EA, FCA
Dimitry Mindlin, ASA, MAAA, Ph.D.
Mark Shemtob, FSA, EA, FCA, MAAA, MSPA
Jack VanDerhei, CEBS, Ph.D.

At the Society of Actuaries Research Institute:
Barbara Scott, SOA Senior Research Administrator
Steven Siegel, ASA, MAAA, SOA Senior Research Actuary

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