Computer system and method for determining optimal asset allocation

A computer system for selecting an asset allocation for an investment portfolio intended to produce a target retirement income payout starting at a target retirement date, the computer system comprising:

• a processor;
• and
• a memory in communication with the processor and storing program instructions, the processor operative with the program instructions to:
• receive inputs with respect to (a) a nominal rate of contributions to the investment portfolio;
• (b) a planned retirement age;
• (c) an assumed wage profile;
• (d) assumed income replacement needs;
• (e) at least one of assumed pension benefits and assumed Social Security benefits;
• (f) an assumed tax rate;
• and (g) male and female mortality tables;
• calculate simulated investment outcomes for at least 1,000 simulated lives, each of said simulated lives having associated therewith assumed investment return rates and assumed inflation rates, said assumed investment return rates and assumed inflation rates randomly selected in three-year clusters from historical data concerning inflation rates and investment returns, said simulated investment outcomes based on assumed asset allocations in five-percent-of-portfolio increments;
• select said asset allocation based on relative performance of said assumed asset allocations in said simulated investment outcomes;
• and
• use said optimal asset allocation to construct a glide path of annual asset allocations for a retirement investment fund having a predetermined duration.

A method for selecting an asset allocation for an investment portfolio intended to produce a target payout starting at a target date, the method comprising:

• receiving inputs with respect to at least one of:
• (a) the target payout;
• (b) the target date;
• and (c) a nominal rate of contributions to the investment portfolio;
• calculating a plurality of simulated investment outcomes, said plurality comprising at least one thousand simulated investment outcomes, said simulated investment outcomes based on assumed asset allocations, assumed investment return rates and assumed inflation rates, said assumed investment return rates and assumed inflation rates randomly selected in multi-year clusters from historical data concerning inflation rates and investment returns;
• and
• selecting said asset allocation based on relative performance of said assumed asset allocations in said simulated investment outcomes.