Wharton Pension Research Council Working Papers
 

The Dynamics of Lifecycle Investing in 401(k) Plans

Olivia S. Mitchell, The Wharton School, University of Pennsylvania
Gary R. Mottola, Vanguard Center for Retirement Research
Stephen P. Utkus, Vanguard Center for Retirement Research
Takeshi Yamaguchi, The Wharton School, University of Pennsylvania

Abstract

The introduction of lifecycle funds into 401(k) plans offers a rich environment in which to assess workers’ portfolio allocation decisions. Consistent with behavioral models, employer design decisions strongly influence lifecycle adoption behavior while fundamentally altering portfolio characteristics, both in the cross-section and longitudinally. Yet there are also elements of rational choice by new employees, as well as choice constrained by information costs among workers with low literacy characteristics. We conclude that recent legislation encouraging riskier 401(k) portfolios will modify investment patterns, with the rate of change varying according to whether behavioral or rational elements dominate in a given setting.

 

Date Posted: 07 August 2019