Research Summary
Research Summary
Working Hard and Investing for an Early Retirement
Description
I examine consumption, leisure, and portfolio choices made over the life-cycle using a model allowing for semi-flexible leisure and an endogenously chosen retirement date. Under a Cobb-Douglas utility specification, I present closed-form expressions for optimal policies. The model predicts the double humped life-cycle liquid assets curve studied in the empirical literature. The novelty of this result is that the variation in the present value of the extra leisure utility available only upon retirement drives the double humped shape - not a precautionary savings motive. The model also predicts the much-studied precipitous drop in consumption at retirement and that agents invest more aggressively as retirement approaches. A solution under this framework is also a technical innovation within the stochastic control literature.