This paper discusses optimal allocations to stocks and bonds during the contribution and retirement phases in a life-cycle optimization context. We recall known results from the literature and indicate where optimality results are available, and where they become model-dependent. In particular, we show that often-used assumed interest rates in the Dutch pension practice are suboptimal under standard financial market and preference assumptions. Moreover, we show that default life-cycles with respect to equity exposure perform fairly well, from the individual point of view. The default life-cycles should be adjusted for alternative components in the total wealth of an individual. Optimal interest rate exposure is difficult to derive and becomes model-dependent. We reference some results on robustness in that domain.
|Number of pages||68|
|Publication status||Published - 15 Mar 2017|
|Series||Netspar Industry Paper Series|
Grebenchtchikova, A., Molenaar, R., Schotman, P., & Werker, B. (2017). Default life-cycles for retirement savings. Netspar. Netspar Industry Paper Series, No. 70 https://www.netspar.nl/assets/uploads/Netspar-Design-Paper-70-WEB.pdf