The effects of pre-/post-retirement downside consumption constraints on optimal consumption, portfolio, and retirement

Byung Hwa Lim, Ho-Seok Lee and Yong Hyun Shin

Finance Research Letters, 2018, vol. 25, issue C, 213-221

Abstract: We investigate the optimal consumption, portfolio, and voluntary retirement choice problem in which an agent faces both pre-/post-retirement downside consumption constraints. We obtain the closed-form solutions using the martingale method and analyze the effect of the constraints on the optimal policies. We observe that the retirement wealth level is monotonically decreasing with pre-retirement constraints, while it is monotonically increasing with post-retirement constraints. We also find that the post-retirement downside consumption constraint has a significant impact on pre-retirement optimal policies. However, the pre-retirement downside consumption constraint does not act on post-retirement optimal policies.

Keywords: Portfolio selection; Voluntary retirement; Downside consumption constraints; Martingale method (search for similar items in EconPapers)
JEL-codes: C61 E21 G11 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:25:y:2018:i:c:p:213-221

DOI: 10.1016/j.frl.2017.10.029

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