# Target-Date Funds Need 63% More Savings Than All-Equity

Cite as: Gorak, R. (2026). Target-Date Funds Need 63% More Savings Than All-Equity. Tradicted. https://www.tradicted.com/research/anarkulova-lifecycle-2023/
Paper: Aizhan Anarkulova and Scott Cederburg and Michael S. O'Doherty — *Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice*
Published in: Working Paper (SSRN) (2023)
Original: https://doi.org/10.2139/ssrn.4590406
DOI: 10.2139/ssrn.4590406

Key finding: Optimal lifecycle weights stay near one-third domestic and two-thirds international stocks at every age, and target-date fund investors need a 16.27% savings rate (63% more) to match the optimal strategy's 10.00%.

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Lifecycle investing is the practice of setting a retirement portfolio's asset allocation by investor age, typically shifting from stocks toward bonds as retirement nears. Anarkulova, Cederburg, and O'Doherty (2023) bootstrapped 31,801 GFDatabase country-month returns from 39 developed countries (1890–2023) to optimize a US couple's portfolio. The optimal weights stayed near one-third domestic stocks and two-thirds international stocks at every age, with no material fixed income allocation. Their paper, "Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice," finds target-date fund investors need 63% more pre-retirement savings to match it.

## What the Study Found

Averaged from age 25 to 95, the optimal age-based strategy held 99% equity, split 31% domestic and 69% international stocks. The one exception came at retirement: bills took 27% at age 65, falling to 7% by age 68 and 0% by age 70. A balanced portfolio of 60% domestic stocks and 40% bonds required a 19.44% savings rate to match the optimal strategy's 10.00%. Bonds returned 0.95% a year in real terms versus 7.03% for international stocks, and bonds' 30-year variance ratio was 2.30 versus 0.75. Under a domestic-only IID bootstrap, the age-65 portfolio instead held 38% domestic stocks, 14% bonds, and 48% bills.

> "Our key finding is that the optimal age-based policy eschews fixed income investments in favor of an all-equity portfolio for nearly all of the lifecycle."
>
> Anarkulova, Cederburg and O'Doherty (2023), *Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice*, p. 19.

## Methodology

The dataset is monthly real returns on domestic stocks, international stocks, government bonds, and bills, built from Global Financial Data's GFDatabase. It pools 31,801 country-month observations from 39 developed countries, and each strategy was simulated across 1,000,000 lifecycle outcomes. The sample spans 1890 to 2023, resampled with a stationary block bootstrap averaging 120-month blocks. The model controls for stochastic labor income, Social Security, longevity risk, a bequest motive, a 4% withdrawal rule, and no-leverage constraints.

## Key Statistics

| Metric | Finding | Context |
|---|---|---|
| Optimal fixed-weight strategy | 33% domestic stocks, 67% international stocks, 0% bonds, 0% bills | Equivalent savings rate 10.07% versus the 10.00% age-based baseline |
| Equivalent savings rate, 100% bills | 56.71% | To match a 10.00% savings rate in the optimal age-based strategy |
| Equivalent savings rate, 100% domestic stocks | 16.42% | To match a 10.00% savings rate in the optimal age-based strategy |
| Probability of financial ruin, balanced 60/40 | 16.9% | 4% withdrawal rule; 38.9% for bills, 17.1% for domestic stocks |
| Correlation with inflation, 30-year returns | −0.78 (bonds) vs −0.01 (international stocks) | 39 developed countries, 1890 to 2023 |
| Highest price-dividend quintile allocation | 16% domestic stocks, 75% international stocks, 9% bonds | Market-timing extension; equivalent savings rate 9.73% |
| Borrowing at a 1.40% spread | 55% of wealth; 34% domestic and 66% international stocks | Leverage extension, Table VII Panel M |
| 50% belief in American exceptionalism | 60% US stocks, 40% international stocks | Mix of developed-country and US-only bootstrap samples |
| Household utility (Equation 1) | U(C, B) = Σ δ^t (C_t / √H_t)^(1−γ) / (1−γ) + δ^Tmax θ (B + k)^(1−γ) / (1−γ) | γ = 3.84, k = $490,000 in 2022 USD; summed over retirement months |

## Optimal Age-Based Strategy vs Target-Date Fund

| Measure | Optimal age-based strategy | TDF |
|---|---|---|
| Mean wealth at retirement | $1.06 million | $0.77 million |
| Mean income replacement rate | 1.24 | 1.03 |
| Probability of financial ruin | 6.7% | 19.7% |
| Mean wealth at death | $2.66 million | $0.72 million |
| Median bequest | $0.96 million | $0.27 million |
| Average maximal retirement drawdown | 47% | 40% |
| 95th percentile retirement drawdown | 73% | 89% |

## Why This Matters

Target-date funds, the dominant default in US workplace plans, are built on the stock-bond glidepath this paper tests. Savers reviewing a target-date fund can compare its bond sleeve and home-country tilt against the model's choices. An all-equity plan only works if the saver holds through deep interim losses, a behavioral risk the authors flag. Regulators defining qualified default options and plan sponsors choosing default funds are the audiences the paper names directly.

## FAQ

### How much more must target-date fund investors save to match an all-equity strategy?

Target-date fund investors must save 16.27% of labor income to match the expected retirement utility of a 10.00% savings rate in the optimal age-based strategy. That gap equals 63% more savings. In the same comparison, the balanced 60/40 strategy needs 19.44% and a 100% domestic stock portfolio needs 16.42%.

### Does the all-equity lifecycle result depend on US stock market data?

Excluding all United States data still leaves the optimal fixed-weight strategy with 0% in bonds and bills. Across the paper's alternative designs, the domestic stock weight ranged between 27% and 45%. A couple with complete conviction in American exceptionalism would instead hold 100% US stocks, while a 90% belief implies 96% US and 4% international.

### Should investors who can borrow lever up a 60/40 portfolio instead of holding all equity?

Asness's levered balanced strategy of 60% domestic stocks, 40% bonds, and 55% borrowing has an equivalent savings rate of 19.14% against the unlevered all-equity optimum. At a 6.50% borrowing spread, the modeled couple does not borrow at all. Bonds enter only at a 0.37% spread, reaching 15% with borrowing at the 100% cap.

## Source

Anarkulova, A., Cederburg, S., and O'Doherty, M. S. (2023). Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice. Working Paper (SSRN).

[Read the full paper →](https://doi.org/10.2139/ssrn.4590406)