Life-Cycle Portfolios as Government Policy
Summary
A life-cycle portfolio for personal accounts within Social Security, such as President George Bush has proposed, would adjust risk exposure as a function of the worker’s age. This would involve the government in making complex dynamic portfolio decisions for individuals. The conventional rule of thumb that workers should invest a percentage of their portfolio equal to roughly 100 minus their age in stocks appears to be far from optimal. Choosing the optimal portfolio requires considering issues of behavioral economics such as why people do not already invest optimally and what kinds of people will sign up for the life-cycle portfolio.Recommended Citation
Shiller, Robert J.
(2005)
"Life-Cycle Portfolios as Government Policy,"
The Economists' Voice:
Vol. 2
:
Iss.
1, Article 14.
Available at: http://www.bepress.com/ev/vol2/iss1/art14