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.
Original language | English |
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Publisher | Netspar |
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Number of pages | 68 |
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Publication status | Published - 15 Mar 2017 |
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Series | Netspar Industry Paper Series |
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Number | 70 |
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