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Retirement Flexibility and Portfolio Choice

Author

Listed:
  • Adema, Y.

    (Tilburg University, Center For Economic Research)

  • Bonenkamp, J.

    (Tilburg University, Center For Economic Research)

  • Meijdam, A.C.

    (Tilburg University, Center For Economic Research)

Abstract

This paper explores the interaction between retirement flexibility and portfolio choice in an overlapping-generations model. We analyse this interaction both in a partial-equilibrium and general-equilibrium setting. Retirement flexibility is often seen as a hedge against capital-market risks which justifies more risky asset portfolios. We show, however, that this positive relationship between risk taking and retirement flexibility is weakened and under some conditions even turned around, if not only capital-market risks but also productivity risks are considered. Productivity risk in combination with a high elasticity of substitution between consumption and leisure creates a positive correlation between asset returns and labour income, reducing the willingness of consumers to bear risk. Moreover, it turns out that general-equilibrium effects can either increase or decrease the equity exposure, depending on the degree of substitutability between consumption and leisure. Key words: retirement (in) flexibility, portfolio allocation, risk, intratemporal substitution elasticity JEL codes: E21, G11, J26
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Adema, Y. & Bonenkamp, J. & Meijdam, A.C., 2011. "Retirement Flexibility and Portfolio Choice," Discussion Paper 2011-077, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:1c3af8c2-1351-4249-b296-960eaa9b559f
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    References listed on IDEAS

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    More about this item

    Keywords

    retirement (in)fl exibility; portfolio allocation; risk; intratemporal substitution elasticity;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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