Retirement Flexibility and Portfolio Choice

Y. Adema, J. Bonenkamp, A.C. Meijdam

Research output: Working paperDiscussion paperOther research output

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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 fl exibility 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.
Original languageEnglish
Place of PublicationTilburg
PublisherEconomics
Volume2011-077
Publication statusPublished - 2011

Publication series

NameCentER Discussion Paper
Volume2011-077

Fingerprint

Retirement
Portfolio choice
Leisure
General equilibrium
Productivity
Capital markets
Market risk
Interaction
Equity
Elasticity of substitution
Hedge
Substitutability
Willingness
Partial equilibrium
Asset returns
Assets
Labor income
Overlapping generations model
Risk taking

Keywords

  • retirement (in)fl exibility
  • portfolio allocation
  • risk
  • intratemporal substitution elasticity

Cite this

Adema, Y., Bonenkamp, J., & Meijdam, A. C. (2011). Retirement Flexibility and Portfolio Choice. (CentER Discussion Paper; Vol. 2011-077). Tilburg: Economics.
Adema, Y. ; Bonenkamp, J. ; Meijdam, A.C. / Retirement Flexibility and Portfolio Choice. Tilburg : Economics, 2011. (CentER Discussion Paper).
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Adema, Y, Bonenkamp, J & Meijdam, AC 2011 'Retirement Flexibility and Portfolio Choice' CentER Discussion Paper, vol. 2011-077, Economics, Tilburg.

Retirement Flexibility and Portfolio Choice. / Adema, Y.; Bonenkamp, J.; Meijdam, A.C.

Tilburg : Economics, 2011. (CentER Discussion Paper; Vol. 2011-077).

Research output: Working paperDiscussion paperOther research output

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Adema Y, Bonenkamp J, Meijdam AC. Retirement Flexibility and Portfolio Choice. Tilburg: Economics. 2011. (CentER Discussion Paper).