Forced retirement risk and portfolio choice

Guodong Chen, Minjoon Lee and Tong-yob Nam

Journal of Empirical Finance, 2020, vol. 58, issue C, 293-315

Abstract: Current literature on the effect of labor income on portfolio choice overlooks that workers face a risk of being forced to retire before their planned retirement age. Using data from the Health and Retirement Study, this paper finds that the forced retirement risk is both significant and highly correlated with stock market fluctuations. Using a life-cycle portfolio choice model, this paper shows that forced retirement risk makes labor income near retirement stock-like. Therefore, contrary to conventional wisdom, those who are still working but near retirement should have a lower share of risky assets in their financial portfolios than retirees do.

Keywords: Forced retirement; Human capital; Portfolio choice (search for similar items in EconPapers)
JEL-codes: D14 E21 G11 G12 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Working Paper: Forced Retirement Risk and Portfolio Choice (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:58:y:2020:i:c:p:293-315

DOI: 10.1016/j.jempfin.2020.06.007

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