Optimal retirement with unemployment risks
AbstractThis paper investigates the optimal retirement of an individual in the presence of involuntary unemployment risks and borrowing constraints in a complete market with frictions. We use an intensity model and loading factors to illustrate the involuntary unemployment risks and frictions in unemployment insurance markets. Using reasonably calibrated parameters, we observe that high involuntary unemployment intensity and loading factors could be important explanations for the empirical findings emphasized in recent studies. We also find that an individual with high leisure demand after retirement reduces consumption during retirement and increases stockholdings as retirement time approaches.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 37 (2013)
Issue (Month): 9 ()
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Web page: http://www.elsevier.com/locate/jbf
Unemployment risk; Involuntary retirement; Optimal retirement; Moderate equity holdings; Retirement consumption puzzle;
Find related papers by JEL classification:
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
- J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
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