  In this paper,we study the individual's optimal retirement time and optimal
consumption under habitual persistence. Because the individual feels equally
satisfied with a lower habitual level and is more reluctant to change the
habitual level after retirement, we assume that both the level and the
sensitivity of the habitual consumption decline at the time of retirement. We
establish the concise form of the habitual evolutions, and obtain the optimal
retirement time and consumption policy based on martingale and duality methods.
The optimal consumption experiences a sharp decline at retirement, but the
excess consumption raises because of the reduced sensitivity of the habitual
level. This result contributes to explain the "retirement consumption puzzle".
Particularly, the optimal retirement and consumption policies are balanced
between the wealth effect and the habitual effect. Larger wealth increases
consumption, and larger growth inertia (sensitivity) of the habitual level
decreases consumption and brings forward the retirement time.
