Correspondence: Nigel D. Lewis, Teacher Retirement System of Texas, 1000 Red River Street, Austin, Texas 78701-2698, USA. Tel: 512 542 6400; Fax: 512 370 5144; E-mail: nigel.lewis@trs.state.tx.us

¹is the Chief Risk Officer at the Teacher Retirement System of Texas. His current research is focused on asset allocation in target date funds, passive risk-based lifecycle asset allocation, semi-passive hedge fund replication, intelligent portfolio optimisation, alternative assets in lifecycle investing and post-retirement optimal asset allocation.

Received 30 July 2008; Revised 30 July 2008.

Abstract

Despite the growing importance of target date funds as retirement accumulation vehicles, there exists a paucity of literature on their comparative risk-return characteristics. This paper develops a stochastic simulation model to capture the impact of different target date equity glide paths on retirement wealth creation. The findings are contrasted against the retirement wealth created by a typical defined benefit plan. The results have important implications for target date fund participants and plan sponsors whose fiduciary duty is to select and offer a suitable line of target date products.