Intelligent Risk Taking: How to Secure Retirement in a Low Expected Return World

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Wharton Pension Research Council Working Papers
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Defined Contribution
Target Date Funds
Alternative Risk Premia
Style Investing
Smart Beta
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Economics
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Illmanen, Antti
Rauseo, Matthew
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Retirement savers’ ability to consume in retirement is a function of how much they save, how long they invest, and what those investments return over the lifecycle. In this chapter, we examine the rate of return needed to deliver a comfortable retirement based on current savings rates as well as intelligent ways to construct portfolios to achieve this rate of return. Based on reasonable longterm return assumptions, defined contribution portfolios as frequently constructed today are unlikely to achieve this required rate of return. By relaxing existing constraints and taking advantage of well-known and broadly accepted investment themes this required rate of return can be achieved with an exceptionally well-diversified portfolio, which may also lead to a more consistent portfolio across different economic environments.

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2017-09-01
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The published version of this Working Paper may be found in the 2018 publication: How Persistent Low Returns Will Shape Saving and Retirement (https://pensionresearchcouncil.wharton.upenn.edu/coming-soon-persistent-low-returns-will-shape-saving-retirement/)
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