Optimal retirement with unemployment risks

Bong-Gyu Jang, Seyoung Park and Yuna Rhee

Journal of Banking & Finance, 2013, vol. 37, issue 9, 3585-3604

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.

Keywords: Unemployment risk; Involuntary retirement; Optimal retirement; Moderate equity holdings; Retirement consumption puzzle (search for similar items in EconPapers)
JEL-codes: C61 D91 E24 G11 J26 J65 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:9:p:3585-3604

DOI: 10.1016/j.jbankfin.2013.05.017

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