Optimal Investment, Consumption and Retirement Decision with Disutility and Borrowing Constraints
Posted: 15 Apr 2007 Last revised: 29 Oct 2010
Date Written: March 21, 2009
Abstract
In this paper we consider a general consumption, portfolio and retirement optimization problem in which a working investor has borrowing constraints. Closed-form solutions are obtained for the utility maximization problems, and numerical procedures are given for the general utility function under borrowing constraints. Moreover we apply the results to the special utility function, the constant elative risk aversion (CRRA) utility function, and its numerical results suggest that the restriction to borrow future labor income makes the investor retire in a lower critical wealth level than in the case of no borrowing constraints.
Keywords: Consumption, portfolio selection, retirement, disutility,utility maximization, labor income, liquidity constraints
JEL Classification: D91, E21, G11
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