Optimal Retirement with Unemployment Risks

Posted: 20 Aug 2011 Last revised: 22 Jul 2013

See all articles by Bong-Gyu Jang

Bong-Gyu Jang

Pohang University of Science and Technology (POSTECH)

Seyoung Park

Nottingham University Business School

Yuna Rhee

Pohang University of Science and Technology (POSTECH)

Date Written: October 13, 2011

Abstract

This paper investigates the optimal retirement of an individual in the presence of involuntary unemployment risks and borrowing constraints in a complete market with frictions. An intensity model and loading factors are used to illustrate these involuntary unemployment risks and frictions in unemployment insurance markets. Using reasonably calibrated parameters, we observe that high involuntary unemployment intensity and loading factors could be important explanations for the empirical findings emphasized in recent studies. We also find that an individual with high leisure demand after retirement reduces consumption during retirement and increases stockholdings as retirement time approaches.

Keywords: unemployment risk, involuntary retirement, optimal retirement, moderate equity holdings, retirement consumption puzzle

JEL Classification: J65, J26, E24, G11, D91, C61

Suggested Citation

Jang, Bong-Gyu and Park, Seyoung and Rhee, Yuna, Optimal Retirement with Unemployment Risks (October 13, 2011). Journal of Banking and Finance, Vol 37, Issue 9. Available at SSRN: https://ssrn.com/abstract=1913017 or http://dx.doi.org/10.2139/ssrn.1913017

Bong-Gyu Jang (Contact Author)

Pohang University of Science and Technology (POSTECH) ( email )

77 Cheongam-ro
Pohang
Korea, Republic of (South Korea)

Seyoung Park

Nottingham University Business School ( email )

Nottingham University Business School
Jubilee Campus
Nottingham
United Kingdom
+44-7927-494518 (Phone)

Yuna Rhee

Pohang University of Science and Technology (POSTECH) ( email )

77 Cheongam-ro
Pohang
Korea, Republic of (South Korea)
+82-54-279-2978 (Phone)
+82-54-279-2870 (Fax)

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