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Efficient Timing of Retirement

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  • Kingston, Geoffrey H.

Abstract

A fundamental question in personal finance is deciding when to retire. This article is a theoretical investigation within a conventional life-cycle setting. It finds two closed-form solutions to the retirement timing problem. One solution, based on an isoelastic form of the utility function and a non-negative rate of time preference, identifies nine variables that could affect the retirement decision. The other formula, based on a log form of the utility function and a zero rate of time preference, sees the number of variables reduced to four. This simplified formula is especially easy to interpret, and could be of particular use to empirical researchers and financial planners.

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File URL: http://hdl.handle.net/2123/7417
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Bibliographic Info

Paper provided by University of Sydney, School of Economics in its series Working Papers with number 03.

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Date of creation: Feb 1999
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Handle: RePEc:syd:wpaper:2123/7417

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Postal: Sydney, NSW 2006
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Web page: http://sydney.edu.au/arts/economics
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  1. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
  2. Samwick, Andrew A., 1998. "New evidence on pensions, social security, and the timing of retirement," Journal of Public Economics, Elsevier, vol. 70(2), pages 207-236, November.
  3. Barry J. Nalebuff & Richard J. Zeckhauser, 1985. "Pensions and the Retirement Decision," NBER Chapters, in: Pensions, Labor, and Individual Choice, pages 283-316 National Bureau of Economic Research, Inc.
  4. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  5. Olivia S. Mitchell & Gary S. Fields, 1983. "The Economics of Retirement Behavior," NBER Working Papers 1128, National Bureau of Economic Research, Inc.
  6. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 2001. "What Accounts for the Variation in Retirement Wealth among U.S. Households?," American Economic Review, American Economic Association, vol. 91(4), pages 832-857, September.
  7. John B. Burbidge & A. Leslie Robb, 1980. "Pensions and Retirement Behaviour," Canadian Journal of Economics, Canadian Economics Association, vol. 13(3), pages 421-37, August.
  8. Zvi Bodie & Robert C. Merton & William F. Samuelson, 1992. "Labor Supply Flexibility and Portfolio Choice in a Life-Cycle Model," NBER Working Papers 3954, National Bureau of Economic Research, Inc.
  9. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August.
  10. Stock, James H & Wise, David A, 1990. "Pensions, the Option Value of Work, and Retirement," Econometrica, Econometric Society, vol. 58(5), pages 1151-80, September.
  11. R. C. Merton, 1970. "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Working papers 58, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Gary S. Fields & Olivia S. Mitchell, 1984. "Retirement, Pensions, and Social Security," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262060914, December.
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Cited by:
  1. Heijdra, Ben J. & Romp, Ward E., 2009. "Retirement, pensions, and ageing," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 586-604, April.
  2. David Dorn & Alfonso Sousa-Poza, 2005. "Early Retirement: Free Choice or Forced Decision," CESifo Working Paper Series 1542, CESifo Group Munich.
  3. L. Deidda & F. Cerina, 2002. "Do we need more time for leisure?," Working Paper CRENoS 200203, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  4. Boucekkine, Raouf & de la Croix, David & Licandro, Omar, 2000. "Vintage Human Capital, Demographic Trends and Endogenous Growth," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2000007, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  5. Kingston, Geoffrey, 2004. "Superannuation: A Guide to the Field for Australian Economists," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 34(2), pages 203-26, September.
  6. David Haardt, 2007. "Transitions Out Of and Back To Employment among Older Men and Women in the UK," Social and Economic Dimensions of an Aging Population Research Papers 197, McMaster University.
  7. Farhi, Emmanuel & Panageas, Stavros, 2007. "Saving and investing for early retirement: A theoretical analysis," Journal of Financial Economics, Elsevier, vol. 83(1), pages 87-121, January.
  8. repec:ese:iserwp:2006-20 is not listed on IDEAS

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