  Demographic changes increase the necessity to base the pension system more
and more on the second and the third pillar, namely the occupational and
private pension plans; this paper deals with Target Date Funds (TDFs), which
are a typical investment opportunity for occupational pension planners. TDFs
are usually identified with a decreasing fraction of wealth invested in equity
(a so-called glide path) as retirement comes closer, i.e., wealth is invested
more risky the younger the saver is. We investigate whether this is actually
optimal in the presence of non-tradable income risk in a stochastic volatility
environment. The retirement planning procedure is formulated as a stochastic
optimization problem. We find it is the (random) contributions that induce the
optimal path exhibiting a glide path structure, both in the constant and
stochastic volatility environment. Moreover, the initial wealth and the initial
contribution made to a retirement account strongly influence the fractional
amount of wealth to be invested in risky assets. The risk aversion of an
individual mainly determines the steepness of the glide path.
