The Irrelevance of Target Date Investing: International Evidence for Long Run Savings and Decumulation and Its Implication for Glidepath Investing

Glidepath, Lifestyle or Target Date Funds have emerged as the leading form for defined contribution funds in the US in recent years. Although there is theoretical support for this form of pension investment portfolio, many question its efficacy when compared with holding a high percentage of equities throughout. In this article, we present international evidence on the time diversification aspects of bond and equity returns over the past 100 years and show how this impacts our understanding of the appropriate asset composition of pension savings into retirement. For a sample of 13 developed countries since 1926, we examine the properties of equity and bond aggregate returns using variance ratio tests and find that equity markets show mean reversion, but bond markets possess mean aversion. In contrast to the existing literature, which focuses on lifetime utility and wealth comparisons, we compare the accumulation and decumulation experiences of each country using the Perfect Contribution and Perfect Withdrawal Rates and find that the Glidepath changing asset allocation strategies are inferior to 100% equity portfolios, adding to the evidence that challenges the benefits of Target Date Funds.