Business Economics and Public Policy Papers

Document Type

Journal Article

Date of this Version

10-2011

Publication Source

Review of Finance

Volume

15

Issue

4

Start Page

875

Last Page

907

DOI

10.1093/rof/rfr016

Abstract

This paper derives optimal lifecycle asset allocations for consumers who select work hours and retirement ages given uncertain labor income and investment returns. These shocks shape retirement and asset allocation patterns in complex ways: negative labor market shocks and high stock returns influence the young to work less and buy more annuities, and later, to retire early. This flexibility enhances welfare; our model also fits several important empirical stylized facts including the two peaks in retirement rates, the hump-shaped pattern of work hours, the sizeable discontinuity in consumption at retirement, and low annuity take-ups of older households.

Copyright/Permission Statement

This is a pre-copyedited, author-produced PDF of an article accepted for publication in Review of Finance following peer review. The version of record Jingjing Chai, Wolfram Horneff, Raimond Maurer, Olivia S. Mitchell; Optimal Portfolio Choice over the Life Cycle with Flexible Work, Endogenous Retirement, and Lifetime Payouts, Review of Finance, Volume 15, Issue 4, 1 October 2011, Pages 875–907 is available online at: https://doi.org/10.1093/rof/rfr016

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Date Posted: 27 November 2017

This document has been peer reviewed.