What type of study is this?

September 5, 2025Open Access

Optimal Job-Switching and Portfolio Decisions with a Mandatory Retirement Date

GKGeonwoo KimSeoul National University of Science and Technology JJJunkee JeonKyung Hee University

Key Points

The framework establishes optimal policies for job switching and investment to maximize lifetime utility effectively.
Using a dual-martingale approach, the study confirms optimality with significant insights into consumption and leisure preferences.
The findings reveal critical trade-offs between labor income and leisure throughout an individual's career, influencing retirement planning.
These results emphasize the importance of strategic financial decision-making as one approaches a mandatory retirement date.

Abstract

We study a finite-horizon optimal job-switching and portfolio allocation problem where an agent faces a mandatory retirement date. The agent can freely switch between two jobs with differing levels of income and leisure. The financial market consists of a risk-free asset and a risky asset, with the agent making dynamic consumption, investment, and job-switching decisions to maximize lifetime utility. The utility function follows a Cobb–Douglas form, incorporating both consumption and leisure preferences. Using a dual-martingale approach, we derive the optimal policies and establish a verification theorem confirming their optimality. Our results provide insights into the trade-offs between labor income and leisure over a finite career horizon and their implications for retirement planning and investment behavior.

Ask AI

Helpful

Bookmark

View Full Paper