Bifurcation in optimal retirement
Bushra Shehnam Ashraf, Thomas S. Salisbury
TL;DR
This paper analyzes how individuals' retirement decisions depend on initial wealth, revealing a bifurcation where high wealth leads to retirement, low wealth to never retiring, and a critical wealth level causes indecision.
Contribution
It introduces a simple model demonstrating a bifurcation in optimal retirement choices based on initial wealth levels.
Findings
High wealth individuals choose to retire.
Low wealth individuals choose to never retire.
A critical wealth level causes a continuum of optimal strategies.
Abstract
We study optimal consumption and retirement using a Cobb-Douglas utility and a simple model in which an interesting bifurcation arises. With high wealth, individuals plan to retire. With low wealth they plan to never retire. At a critical level of initial wealth they may choose to defer this decision, leading to a continuum of wealth trajectories with identical utilities.
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Taxonomy
TopicsEconomic theories and models · Energy, Environment, and Transportation Policies · Labor market dynamics and wage inequality