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Optimal retirement with unemployment risks

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  • Jang, Bong-Gyu
  • Park, Seyoung
  • Rhee, Yuna
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    Abstract

    This 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 Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 37 (2013)
    Issue (Month): 9 ()
    Pages: 3585-3604

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    Handle: RePEc:eee:jbfina:v:37:y:2013:i:9:p:3585-3604

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Unemployment risk; Involuntary retirement; Optimal retirement; Moderate equity holdings; Retirement consumption puzzle;

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