Time-inconsistent life-cycle consumption and retirement choice with mortality risk

Shangzhen Luo, Mingming Wang and Wei Zhu

Applied Mathematics and Computation, 2022, vol. 433, issue C

Abstract: In this paper, we propose a general model to study life-cycle consumption and retirement choice of individuals with mortality risk and various forms of discounting preference. By solving the Euler-Lagrange equations, we obtain the optimal consumption strategy explicitly and provide an equation to solve for optimal retirement age. Two intuitive budget constraints are established to demonstrate the effects of precautionary saving and bequest motives on the optimal choices. We also explore the effects of interest rate, income and discounting preference on the optimization, where numerical examples are used to illustrate the role of these factors on the consumption behavior and retirement timing.

Keywords: Life-cycle consumption; Retirement; Euler-Lagrange equation; Mortality risk; Time-inconsistency (search for similar items in EconPapers)
JEL-codes: C61 D15 D91 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:apmaco:v:433:y:2022:i:c:s0096300322004702

DOI: 10.1016/j.amc.2022.127396

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