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The Role of Annuitized Wealth in Post-retirement Behavior

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  • John Laitner
  • Dan Silverman
  • Dmitriy Stolyarov

Abstract

This paper develops a tractable model of post-retirement behavior with health status uncertainty and state-verification difficulties. The model distinguishes between annuitized and non-annuitized wealth and features means-tested Medicaid assistance with nursing home care. We show how to solve the potentially complex dynamic problem analytically, making it possible to characterize optimal behavior with phase diagrams. The analysis provides an integrated treatment of portfolio composition and consumption/wealth accumulation choices. We show the model can explain both the "retirement-saving puzzle" and the "annuity puzzle."

Suggested Citation

  • John Laitner & Dan Silverman & Dmitriy Stolyarov, 2018. "The Role of Annuitized Wealth in Post-retirement Behavior," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(3), pages 71-117, July.
    • Handle: RePEc:aea:aejmac:v:10:y:2018:i:3:p:71-117
    Note: DOI: 10.1257/mac.20160343
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    References listed on IDEAS

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    Cited by:

    1. Mariacristina De Nardi & Eric French & John Bailey Jones & Rory McGee, 2021. "Why Do Couples and Singles Save During Retirement?," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, vol. 21(09), pages 1-65, May.
    2. Stefan Wrzaczek & Michael Kuhn & Ivan Frankovic, 2020. "Using Age Structure for a Multi-stage Optimal Control Model with Random Switching Time," Journal of Optimization Theory and Applications, Springer, vol. 184(3), pages 1065-1082, March.
    3. Mariacristina De Nardi & Eric French & John Bailey Jones & Rory McGee, 2021. "Why Do Couples and Singles Save during Retirement? Household Heterogeneity and its Aggregate Implications," NBER Working Papers 28828, National Bureau of Economic Research, Inc.
    4. Siha Lee & Kegon Teng Kok Tan, 2023. "Bequest Motives and the Social Security Notch," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 888-914, December.
    5. Amitabh Chandra & Courtney Coile & Corina Mommaerts, 2023. "What Can Economics Say about Alzheimer's Disease?," Journal of Economic Literature, American Economic Association, vol. 61(2), pages 428-470, June.
    6. Jessamyn Schaller & Chase Eck, 2019. "Adverse Life Events and Intergenerational Transfers," Upjohn Working Papers 19-309, W.E. Upjohn Institute for Employment Research.

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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