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Differential Mortality, Uncertain Medical Expenses, and the Saving of Elderly Singles

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Author Info
Mariacristina De Nardi
Eric French
John Bailey Jones

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Abstract

People have heterogenous life expectancies: women live longer than men, rich people live longer than poor people, and healthy people live longer than sick people. People are also subject to heterogenous out-of-pocket medical expense risk. We construct a rich structural model of saving behavior for retired single households that accounts for this heterogeneity, and we estimate the model using AHEAD data and the method of simulated moments. We find that the risk of living long and facing high medical expenses goes a long way toward explaining the elderly's savings decisions. Specifically, medical expenses that rise quickly with both age and permanent income can explain why the elderly singles, and especially the richest ones, run down their assets so slowly. We also find that social insurance has a big impact on the elderly's savings.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12554.

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Date of creation: Oct 2006
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Handle: RePEc:nbr:nberwo:12554

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Find related papers by JEL classification:
D1 - Microeconomics - - Household Behavior
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
I1 - Health, Education, and Welfare - - Health

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References listed on IDEAS
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Purvi Sevak & Lina Walker, 2007. "The Responsiveness of Private Savings to Medicaid Long Term Care Policies," Working Papers wp150, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  2. Karsten Jeske & Sagiri Kitao, 2007. "U.S. tax policy and health insurance demand: can a regressive policy improve welfare?," Working Paper 2007-13, Federal Reserve Bank of Atlanta. [Downloadable!]
  3. John Ameriks & Andrew Caplin & Steven Laufer & Stijn Van Nieuwerburgh, 2007. "The Joy of Giving or Assisted Living? Using Strategic Surveys to Separate Bequest and Precautionary Motives," NBER Working Papers 13105, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Kam Ki Tang & Jie Zhang, 2007. "Morbidity, Mortality, Health Expenditures and Annuitization," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  5. Olesya Baker & Phil Doctor & Eric French, 2007. "Asset rundown after retirement: the importance of rate of return shocks," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 48-65. [Downloadable!]
  6. Eric French & Mariacristina De Nardi & John Bailey Jones & Olesya Baker & Phil Doctor, 2006. "Right before the end: asset decumulation at the end of life," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 2-13. [Downloadable!]
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