Theoretical considerations on the retirement consumption puzzle and the optimal age of retirement

Nicolas Drouhin (1, 2)

1 CREST - Centre de Recherche en Économie et Statistique
2 ENS Paris Saclay - Ecole Normale Supérieure Paris-Saclay

Defining retirement as a discontinuity in the labor supply of the agent, this paper resolves the retirement consumption puzzle in a very general model of in-tertemporal choice of consumption and savings of a fully rational, forward looking, agent. Building on a specific version of Bellman (1957) principle of optimality, it provides a very general and parsimonious formula for determining the optimal age of retirement taking into account the possible discontinuity of the optimal consumption profile at the age of retirement. Code JEL: C61 D91 J26

Mots clés: life cycle theory of consumption and saving; optimal retirement; retirement consumption puzzle; discontinuous optimal control

Domaines: Economies et finances

Nicolas Drouhin. Theoretical considerations on the retirement consumption puzzle and the optimal age of retirement. 2018. ⟨halshs-01767096⟩