Saving for Retirement in Europe : The Long-Term Risk-Return Tradeoff

A comparison of the performances of pension products that ignores long-term trends might significantly overestimate the long-term impact of volatility risks while underestimating the impact of persistent, low frequency trends. This paper proposes a comparison making use of projection models based on the long-term risk-return tradeoff proposed by Campbell and Viceira (2005) to explicitly take into account slow moving economic trends. In order to illustrate the approach and its implications, we discuss the capital protection provided by life-cycle target-date fund strategies and minimum guarantee strategies