Forced retirement risk and portfolio choice

TitleForced retirement risk and portfolio choice
Publication TypeJournal Article
Year of Publication2020
AuthorsChen, G, Lee, M, Nam, TYob
JournalJournal of Empirical Finance
Pagination293 - 315
ISBN Number0927-5398
KeywordsForced retirement, Human capital, Portfolio choice

Current literature on the effect of labor income on portfolio choice overlooks that workers face a risk of being forced to retire before their planned retirement age. Using data from the Health and Retirement Study, this paper finds that the forced retirement risk is both significant and highly correlated with stock market fluctuations. Using a life-cycle portfolio choice model, this paper shows that forced retirement risk makes labor income near retirement stock-like. Therefore, contrary to conventional wisdom, those who are still working but near retirement should have a lower share of risky assets in their financial portfolios than retirees do.

Citation Key10918