Optimal retirement strategy with a negative wealth constraint

Abstract

This paper investigates an optimal consumption, portfolio, and retirement time choice problem of an individual with a negative wealth constraint. We obtain analytical results of the optimal consumption, investment, and retirement behaviors and discuss the effect of the negative wealth constraint on the optimal behaviors. We find that, as an individual can borrow more with better credit, she is more likely to retire at a higher wealth level, to consume more, and to invest more in risky assets. (C) 2014 Elsevier B.V. All rights reserved.