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

•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 methods and analyze the effect of the constraints on the optimal po...

Full description

Saved in:
Bibliographic Details
Published in:Finance research letters 2018-06, Vol.25, p.213-221
Main Authors: Lim, Byung Hwa, Lee, Ho-Seok, Shin, Yong Hyun
Format: Article
Language:English
Subjects:
Downside consumption constraints
Martingale method
Portfolio selection
Voluntary retirement
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:•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 methods 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 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. 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.
ISSN:1544-6123
1544-6131
DOI:10.1016/j.frl.2017.10.029