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Optimal early retirement with target wealth

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  • Ivanov, Katerina
  • Tian, Weidong

Abstract

An agent often considers retirement adequacy when making a retirement decision. This paper introduces a target wealth constraint, where financial wealth must exceed an agent-based threshold for retirement, and studies several early retirement models under such a constraint. We present explicit characterizations of the optimal retirement time and demonstrate the influence of the target wealth on the early retirement decision and the consumption-investment strategy. As the target wealth for retirement increases, the agent will increase consumption, decrease investment in the risky asset, and delay the retirement time. Due to the early retirement effect, the proportion of financial wealth invested in risky assets could increase when the financial wealth approaches the target wealth. Our models demonstrate that retirement adequacy is a crucial factor in early retirement decisions.

Suggested Citation

  • Ivanov, Katerina & Tian, Weidong, 2024. "Optimal early retirement with target wealth," Journal of Economic Dynamics and Control, Elsevier, vol. 167(C).
    • Handle: RePEc:eee:dyncon:v:167:y:2024:i:c:s0165188924001180
    DOI: 10.1016/j.jedc.2024.104926
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    Cited by:

    1. Geonwoo Kim & Junkee Jeon, 2024. "Dynamic Asset Allocation and Retirement Decision with Consumption Ratcheting and Effort Choice," Mathematics, MDPI, vol. 12(23), pages 1-18, December.

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    More about this item

    Keywords

    Target wealth; Retirement adequacy; Early retirement; Consumption and investment;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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