Abstract: For a person who can select her hours of work and also her retirement age, optimal life cycle portfolio asset allocations as well as annuity purchases trajectories are derived in this paper. Using a realistically-calibrated model with stochastic mortality and uncertain labor income, the investment universe is extended to include not only purchase stocks and bonds, but also purchase annuities. The results show that making labor supply endogenous not only raises older peoples' equity share and substantially increases work effort by the young, but also markedly enhances lifetime welfare. Furthermore introducing annuities leads to earlier retirement and higher participation by the elderly in financial markets. Finally, if an age-dependent leisure preference parameter is considered, it shows lower work hours and smaller equity holdings at older ages.

Key words: life cycle, portfolio, working time, retirement