Default life-cycles for retirement savings

In this paper we discuss optimal allocations to stocks and bonds during the contribution and retirement phase 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 nancial 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 dicult to derive and becomes model dependent. We referencesome results on robustness in that domain.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


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