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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
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.:
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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. Motohiro Yogo, 2009. "Portfolio Choice in Retirement: Health Risk and the Demand for Annuities, Housing, and Risky Assets," NBER Working Papers 15307, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. 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!]
    Other versions:
  4. 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)
  5. Hugo Benitez-Silva & Frank Heiland, 2008. "Early Retirement, Labor Supply, and Benefit Withholding: The Role of the Social Security Earnings Test," Working Papers wp183, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  6. Robert S. Gazzale & Lina Walker, 2009. "Behavioral Biases in Annuity Choice: An Experiment," Department of Economics Working Papers 2009-01, Department of Economics, Williams College. [Downloadable!]
  7. Kopecky, Karen A. & Koreshkova, Tatyana, 2009. "The Impact of Medical and Nursing Home Expenses and Social Insurance Policies on Savings and Inequality," MPRA Paper 16197, University Library of Munich, Germany. [Downloadable!]
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  8. Kam Ki Tang & Jie Zhang, 2007. "Morbidity, Mortality, Health Expenditures and Annuitization," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  9. Ivan Vidangos, 2009. "Household welfare, precautionary saving, and social insurance under multiple sources of risk," Finance and Economics Discussion Series 2009-14, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  10. Fang Yang, 2009. "Consumption over the Life Cycle: How Different is Housing?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 423-443, July. [Downloadable!] (restricted)
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  11. Mariacristina De Nardi & Eric French & John Bailey Jones, 2009. "Life Expectancy and Old Age Savings," NBER Working Papers 14653, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Francisco Gomes & Alexander Michaelides & Valery Polkovnichenko, 2009. "Optimal Savings with Taxable and Tax-Deferred Accounts," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 718-735, October. [Downloadable!] (restricted)
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  13. 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!]
  14. Zhigang Feng, 2009. "Macroeconomic Consequences of Alternative Reforms to the Health Insurance System in the U.S," Working Papers 0908, University of Miami, Department of Economics. [Downloadable!]
  15. Mariacristina De Nardi & Eric French & John Bailey Jones, 2009. "Why do the elderly save? the role of medical expenses," Working Paper Series WP-09-02, Federal Reserve Bank of Chicago. [Downloadable!]
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  16. Timothy J. Halliday & Hui He & Hao Zhang, 2009. "Health Investment over the Life-Cycle," Working Papers 200910, University of Hawaii at Manoa, Department of Economics. [Downloadable!]
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  17. Susan Thorp & Hardy Hulley & Rebecca McKibbin & Andreas Pedersen, 2009. "Means-Tested Income Support, Portfolio Choice And Decumulation In Retirement," CAMA Working Papers 2009-12, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
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  18. 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!]
  19. Gaobo Pang, Mark J. Warshawsk, . "Optimizing the Equity-Bond-Annuity Portfolio in Retirement: The Impact of Uncertain Health Expenses," Research Reports 4, Watson Wyatt Worldwide. [Downloadable!]
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