Retirement Flexibility and Portfolio Choice

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

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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
Publication statusPublished - 2011

Publication series

NameCentER Discussion Paper


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


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