IDEAS home Printed from
   My bibliography  Save this article

Uncertain Medical Expenses and Precautionary Saving Near the End of the Life Cycle


  • Michael G. Palumbo


This paper introduces a dynamic, structural model of household consumption decisions in which elderly families consider the effects of uncertain future medical expenses when deciding current levels of consumption. The model with uncertain medical expenses implies a potentially important role for precautionary saving incentives to explain slow rates of dissaving among elderly Americans during retirement. Rather than just simulating the stochastic dynamic model, preference parameters are estimated using panel data on health, wealth and expenditures for retired families. The health uncertainty model predicts consumption levels closer to observed expenditures than a life cycle model with uncertain longevity. However, elderly families typically dissave their financial assets more slowly than even the baseline health uncertainty model predicts is optimal.

Suggested Citation

  • Michael G. Palumbo, 1999. "Uncertain Medical Expenses and Precautionary Saving Near the End of the Life Cycle," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(2), pages 395-421.
  • Handle: RePEc:oup:restud:v:66:y:1999:i:2:p:395-421.

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:restud:v:66:y:1999:i:2:p:395-421.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.