Optimal early retirement with target wealth

Katerina Ivanov and Weidong Tian

Journal of Economic Dynamics and Control, 2024, vol. 167, issue C

Abstract: An agent often considers retirement adequacy when making a retirement decision. This paper introduces a target wealth constraint, where financial wealth must exceed an agent-based threshold for retirement, and studies several early retirement models under such a constraint. We present explicit characterizations of the optimal retirement time and demonstrate the influence of the target wealth on the early retirement decision and the consumption-investment strategy. As the target wealth for retirement increases, the agent will increase consumption, decrease investment in the risky asset, and delay the retirement time. Due to the early retirement effect, the proportion of financial wealth invested in risky assets could increase when the financial wealth approaches the target wealth. Our models demonstrate that retirement adequacy is a crucial factor in early retirement decisions.

Keywords: Target wealth; Retirement adequacy; Early retirement; Consumption and investment (search for similar items in EconPapers)
JEL-codes: G01 G12 G14 G20 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:167:y:2024:i:c:s0165188924001180

DOI: 10.1016/j.jedc.2024.104926

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