Extending Life Cycle Models of Optimal Portfolio Choice: Integrating Flexible Work, Endogenous Retirement, and Investment Decisions with Lifetime Payouts

Jingjing Chai, Wolfram Horneff, Raimond Maurer and Olivia Mitchell
Additional contact information
Jingjing Chai: Goethe University
Wolfram Horneff: Goethe University
Raimond Maurer: Goethe University

Working Papers from University of Michigan, Michigan Retirement Research Center

Abstract: This paper derives optimal life cycle portfolio asset allocations as well as annuity purchases trajectories for a consumer who can select her hours of work and also her retirement age. Using a realistically-calibrated model with stochastic mortality and uncertain labor income, we extend the investment universe to include not only stocks and bonds, but also survival-contingent payout annuities. We show that making labor supply endogenous raises older peoples’ equity share; substantially increases work effort by the young; and markedly enhances lifetime welfare. Also, introducing annuities leads to earlier retirement and higher participation by the elderly in financial markets. Finally, when we allow for an age-dependent leisure preference parameter, this fits well with observed evidence in that it generates lower work hours and smaller equity holdings at older ages as well as sensible retirement age patterns.

Pages: 34 pages
Date: 2009-08
New Economics Papers: this item is included in nep-age, nep-dge and nep-lab
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://mrdrc.isr.umich.edu/publications/Papers/pdf/wp204.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden (http://mrdrc.isr.umich.edu/publications/Papers/pdf/wp204.pdf [301 Moved Permanently]--> https://mrdrc.isr.umich.edu/publications/Papers/pdf/wp204.pdf)

Related works:
Working Paper: Extending Life Cycle Models of Optimal Portfolio Choice: Integrating Flexible Work, Endogenous Retirement, and Investment Decisions with Lifetime Payouts (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mrr:papers:wp204

Access Statistics for this paper

More papers in Working Papers from University of Michigan, Michigan Retirement Research Center P.O. Box 1248, Ann Arbor, MI 48104. Contact information at EDIRC.
Bibliographic data for series maintained by MRRC Administrator ().