Optimal Consumption, Portfolio, and Retirement Under Implementation Delay
We develop a continuous-time model of optimal consumption, portfolio allocation, and early retirement that, to our knowledge, is the first to incorporate an implementation delay —a fixed lag δ between the retirement decision and the actual cessation of labor and income. Using a dual-martingale approach, we obtain closed-form solutions and quantify how δ affects optimal behavior. For example, when δ increases from 0.5 to 2 years (baseline parameters: β=0.04, r=0.02, μ=0.08, σ=0.2, γ=3, kB=0.3, and ε=1), optimal pre-retirement consumption rises by approximately 7%, the risky asset share falls by about 5 percentage points, the expected retirement time increases by over 1 year, and the retirement wealth threshold xR grows by roughly 10%. These results provide policy-relevant insights for retirement systems where procedural lags can distort incentives and reduce welfare.
Authors
- Geonwoo Kim (ORCID: https://orcid.org/0000-0002-8930-1154)
- Junkee Jeon (ORCID: https://orcid.org/0000-0002-1091-9745)
Institutions
- Seoul National University of Science and Technology (KR)
- Kyung Hee University (KR)
Publication Details
- Journal
- Mathematics
- Published
- 2025-08-22
- DOI
- https://doi.org/10.3390/math13172704
- Primary Topic
- Financial Literacy, Pension, Retirement Analysis
- Type
- article
- Field-Weighted Citation Impact
- 0.00
Funders
- Seoul National University of Science and Technology