Retirement with risk aversion change and borrowing constraints

We quantify how an economic agent's risk aversion change at retirement and borrowing constraints affect her optimal consumption, portfolio, and retirement decision. Numerical results with a reasonable parameter set imply that increase in an economic agent's relative risk aversion at retirement, strong pre-retirement borrowing constraints, alone or together, can reduce the amount of wealth that must be accumulated to allow retirement. The numerical results also say that increase in an economic agent's relative risk aversion at retirement, decrease in pre-retirement borrowing constraints, or both, can increase the consumption drop at retirement. We also display analytical results for some extreme cases. (C) 2015 Elsevier Inc. All rights reserved.