 Optimal retirement time under habit persistence: what makes individuals retire early?An Chen, Felix Hentschel and Xian Xu Scandinavian Actuarial Journal, 2018, vol. 2018, issue 3, 225-249 Abstract: As the effective labor market exit observed in most OECD countries is lower than the corresponding official retirement age, the question concerning the driving factors for an early retirement decision arises. This paper incorporates the optimal retirement decision in an optimal consumption and asset allocation problem in order to analyze, among others, the effect of habit forming preferences and diverse leisure preferences for earlier retirement. We compare two possible situations for the retirement phase: (a) the individual is allowed to freely consume and invest; (b) he annuitizes his wealth at retirement and consumes the annuity income. We find that early retirement is optimal if leisure gain through earlier retirement is highly appreciated or the standard of living (habit level) is low. Additionally, our numerical results show that high initial wealth or low labor income lead to early retirement, confirming observations of Fields & Mitchell. Date: 2018 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:sactxx:v:2018:y:2018:i:3:p:225-249 Ordering information: This journal article can be ordered from DOI: 10.1080/03461238.2017.1339634 Access Statistics for this article Scandinavian Actuarial Journal is currently edited by Boualem Djehiche More articles in Scandinavian Actuarial Journal from Taylor & Francis Journals |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.