Default life-cycles for retirement savings

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.