Article ID Journal Published Year Pages File Type
957477 Journal of Economic Theory 2010 23 Pages PDF
Abstract
Retirement flexibility and inability to borrow against future labor income can significantly affect optimal consumption and investment. With voluntary retirement, there exists an optimal wealth-to-wage ratio threshold for retirement and human capital correlates negatively with the stock market even when wages have zero or slightly positive market risk exposure. Consequently, investors optimally invest more in the stock market than without retirement flexibility. Both consumption and portfolio choice jump at the endogenous retirement date. The inability to borrow limits hedging and reduces the value of labor income, the wealth-to-wage ratio threshold for retirement, and the stock investment.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
, ,