The PIMCO Glide Path Construction Proces

Pimco
By January 13, 2023 08:26

The PIMCO Glide Path Construction Proces

The savings and investment plan that one follows over the course of one’s working and retirement life is among the most critical decisions an individual can make. The balance between consumption and savings determines one’s overall quality of life, not just in the “golden years” but throughout one’s career as well. The most common academic framework for evaluating lifetime consumption and savings decisions is the life-cycle hypothesis, first developed by Nobel laureate Franco Modigliani in the early 1950s. In Modigliani’s framework, risk-averse households seek to smooth consumption across their working and retirement years by saving a portion of wage income and spending from accumulated savings in retirement. Critically, Modigliani’s work predicts that individuals prefer a smooth consumption stream to a volatile one. One of the key implications of consumptionsmoothing is that investors wish to maintain their quality of lifestyle when they stop working. Hence, the savings and asset allocation plan should be calibrated such that the likelihood of an abrupt change in one’s consumption is minimized as one approaches retirement. 

Pimco
By January 13, 2023 08:26

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