TY - JOUR
T1 - Lifetime consumption and investment
T2 - Retirement and constrained borrowing
AU - Dybvig, Philip H.
AU - Liu, Hong
PY - 2010/5
Y1 - 2010/5
N2 - Retirement flexibility and inability to borrow against future labor income can significantly affect optimal consumption and investment. With voluntary retirement, there exists an optimal wealth-to-wage ratio threshold for retirement and human capital correlates negatively with the stock market even when wages have zero or slightly positive market risk exposure. Consequently, investors optimally invest more in the stock market than without retirement flexibility. Both consumption and portfolio choice jump at the endogenous retirement date. The inability to borrow limits hedging and reduces the value of labor income, the wealth-to-wage ratio threshold for retirement, and the stock investment.
AB - Retirement flexibility and inability to borrow against future labor income can significantly affect optimal consumption and investment. With voluntary retirement, there exists an optimal wealth-to-wage ratio threshold for retirement and human capital correlates negatively with the stock market even when wages have zero or slightly positive market risk exposure. Consequently, investors optimally invest more in the stock market than without retirement flexibility. Both consumption and portfolio choice jump at the endogenous retirement date. The inability to borrow limits hedging and reduces the value of labor income, the wealth-to-wage ratio threshold for retirement, and the stock investment.
KW - Consumption
KW - Investment
KW - Mandatory retirement
KW - Voluntary retirement
UR - https://www.scopus.com/pages/publications/77951767329
U2 - 10.1016/j.jet.2009.08.003
DO - 10.1016/j.jet.2009.08.003
M3 - Article
AN - SCOPUS:77951767329
SN - 0022-0531
VL - 145
SP - 885
EP - 907
JO - Journal of Economic Theory
JF - Journal of Economic Theory
IS - 3
ER -