This paper investigates the optimal retirement of an individual in the presence of involuntary unemployment risks and borrowing constraints in a complete market with frictions. An intensity model and loading factors are used to illustrate these involuntary unemployment risks and frictions in...

We develop a new approach for solving the optimal retirement problem for an individual with an unhedgeable income risk. The income risk stems from a forced unemployment event, which occurs as an exponentially-distributed random shock. The optimal retirement problem is to determine the...

In the aftermath of the financial crisis of 2008, there is increased concern about the potentially catastrophic pension default risk, which results in significant decreases in pension benefits. In order to address the challenge of annuity income uncertainty, I propose a dynamic annuitization...

We develop a retirement model with long-run income risk in which the wealth threshold for retirement is shown to be a function of the extent of the long-run income risk. By devising a new numerical algorithm, we solve the two-dimensional retirement problem. The two-dimensional retirement...

I study optimal consumption and investment for retirement in an economic environment where an individual has retirement flexibility and borrowing constraints. I show that Friedman's (1957) permanent income hypothesis (PIH) is generalized with retirement and constrained borrowing against future...