A portfolio choice problem under risk capacity constraint

This paper studies an optimal investing problem for a retiree facing longevity risk and living standard risk. We formulate the as portfolio choice under time-varying capacity constraint. derive investment strategy specific condition on model parameters in terms of second-order ordinary differential equations. demonstrate endogenous number that measures expected value to sustain spending post-retirement. The is nearly neutral stock market movement if portfolio's higher than this number; but, not worth enough retirement spending, actively invests return. Besides, we solve leverage constraint show would lose significantly stressed markets. shows has important implications asset allocation retirement.