Income Disaster, Role of Income Support, and Optimal Retirement

ArXiv ID: 2509.12874 “View on arXiv”

Authors: Tae Ung Gang, Seyoung Park, Yong Hyun Shin

Abstract

This paper investigates the interactions among consumption/savings, investment, and retirement choices with income disaster. We consider low-income people who are exposed to income disaster so that they retire involuntarily when income disaster occurs. The government provides extra income support to low-income retirees who suffer from significant income gaps. We demonstrate that the decision to enter retirement in the event of income disaster depends crucially on the level of income support. In particular, we quantitatively identify a certain income support level below which the optimal decision is to delay retirement. This implies that availability of the government’s extra income support can be particularly important for the low-income people to achieve optimal retirement with income disaster.

Keywords: consumption/savings, retirement choice, income disaster, income support, dynamic optimization, Household Finance / Consumption

Complexity vs Empirical Score

• Math Complexity: 7.5/10
• Empirical Rigor: 4.0/10
• Quadrant: Lab Rats
• Why: The paper employs advanced stochastic calculus (Brownian motion, stopping times, dynamic programming) and theoretical derivations, but lacks any empirical backtesting or data analysis, focusing instead on qualitative policy implications.

  flowchart TD
    A["Research Goal:<br>How does income support affect<br>retirement decisions during income disasters?"] --> B

    subgraph B ["Methodology & Inputs"]
        direction LR
        B1["Data: Low-income households<br>exposed to income shocks"] --> B2["Model: Dynamic Optimization<br>Consumption/Savings/Investment/Retirement"]
    end

    B2 --> C["Computational Process:<br>Solve for optimal policy function<br>under varying income support levels"]
    
    C --> D{"Decision Analysis:<br>Is support level > threshold?"}
    
    D -- Yes --> E["Outcome: Retire immediately<br>(Optimal decision)"]
    D -- No --> F["Outcome: Delay retirement<br>(Suboptimal decision)"]
    
    E --> G["Key Finding:<br>Government income support<br>crucial for optimal retirement<br>in income disasters"]
    F --> G