Shocks to Income in a Lifecycle Model

Lifecycle models are growing in popularity in financial planning. However, they can overlook the risks posed by income shocks, such as career disruptions, economic downturns, or technological advancements, which can affect financial plans, including retirement. This paper provides financial advisors insights into how to personalize investment strategies based on clients’ career paths, education levels, and employment industry. Adjusting for income shocks may improve retirement planning and appropriateness of portfolio asset allocations by increasing savings rates and adjusting equity exposure in portfolios.