We study optimal portfolio, consumption-leisure and retirement choice of an infinitely lived economic agent whose instantaneous preference is characterized by a constant elasticity of substitution (CES) function of consumption and leisure. We integrate in one model the optimal consumption-leisure-work choice, the optimal portfolio selection, and the optimal stopping problem in which the agent chooses her retirement time. The economic agent derives utility from both consumption and leisure, and is able to adjust her supply of labor flexibly above a certain minimum work-hour, and also has a retirement option. We solve the problem analytically by considering a variational inequality arising from the dual functions of the optimal stopping problem. The optimal retirement time is characterized as the first time when her wealth exceeds a certain critical level. We provide the critical wealth level for retirement and characterize the optimal consumption-leisure and portfolio policies before and after retirement in closed forms. We also derive properties of the optimal policies. In particular, we show that consumption in general jumps around retirement.We are grateful to two anonymous referees and an associate editor for helpful comments and advice. We also appreciate Hyeng Keun Koo for helpful comments.Manuscript

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We study the optimal retirement and consumption/investment choice of an infinitelylived economic agent with a time-separable von Neumann-Morgenstern utility. A particular aspect of our problem is that the agent has a retirement option. Before retirement the agent receives labor income but suffers a utility loss from labor. By retiring, he avoids the utility loss but gives up labor income. We show that the agent retires optimally if his wealth exceeds a certain critical level. We also show that the agent consumes less and invests more in risky assets when he has an option to retire than he would in the absence of such an option.An explicit solution can be provided by solving a free boundary value problem. In particular, the critical wealth level and the optimal consumption and portfolio policy are provided in explicit forms.We thank Hyeng Keun Koo, Jaeyoung Sung, and an anonymous refree for helpful comments. Manuscript

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