Research from the Center for Retirement Research at Boston College suggests that asset allocation is a relatively ineffective factor in creating a secure foundation of retirement income.
The research examines and compares the effectiveness of a handful of levers that have the potential to contribute to a solid foundation of retirement income. Among the levers or contributing factors considered are:
- Asset Allocation
- Working Longer
- A Reverse Mortgage
- Spending Less
The various retirement income factors are measured on the basis of the extent to which they contribute to the “retirement readiness” of a range of households. The key factor in the retirement readiness measure is the replacement rate of a household. The replacement rate is defined as the level of retirement income as a share of pre-retirement income.
The combined effects of working longer and higher Social Security income due to delayed retirement is the clear winner.
For most households, reverse mortgages and spending reductions are also found to be more effective contributors to retirement security than asset allocation.
Source: Center for Retirement Research at Boston College
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