Contrarian strategies, which increase equity weighting as the saver ages further into retirement, do better than conservative and traditional strategies at creating this terminal wealth, while lifecycle strategies limit the upside.
Of course there are tradeoffs. If you hold an aggressive 100 percent equity strategy your median final pot of money is more than seven times as large as with a more conservative lifecycle allocation of decreasing equities down to zero. Aggressive portfolios are also more likely to run out of money during the 20 years, though the risks remain small at a 4 percent withdrawal rate.
The problem with conservative strategies, like those which hold static but low amounts of equities, is that they simply don't generate enough investment gain.
One general point of the study was that strategies with substantial equity weightings give better risk-adjusted outcomes.
"Conservative strategies are unable to withstand the stress of periodic income withdrawal demands, especially as we experience elongated lifespans. Alternatively, contrarian strategies such as reverse lifecycle strategies are able to take advantage of the market movements whilst remaining relatively stable and providing better retirement outcomes and decreased chances of portfolio ruin," according to the study.
Taking more risk as you age will for many people be a gut-wrenching decision, but looks like it may be the right one.