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The link between individual expectations and savings: Do nursing home expectations matter?

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  • Kristin J. Kleinjans
  • Jinkook Lee

    () (Department of Economics, University of Aarhus, Denmark)

Abstract

Preparing for the end of life, especially for the prospect of needing long-term care, is an important issue facing older Americans. Those who reach age 65 have a 40% chance of going into a nursing home in their remaining lifetime, and about 10% of those who do will stay there for at least five years. The costs of a stay are high with on average US$70,000 annually for a private room. Long-term stays in nursing homes are, therefore, not likely, but very expensive. In this paper, we examine individual expectations about future nursing home entry and study the relationship between these expectations and savings behavior, using data from the Health and Retirement Study. We find a clear relation between subjective expectations and probability of future nursing home entry, and a positive effect of these expectations on savings behavior. Surprisingly, we find no difference of this effect by wealth group, so it seems that Medicaid eligibility in the context of nursing home entry plays no factor in the decision to save.

Suggested Citation

  • Kristin J. Kleinjans & Jinkook Lee, 2006. "The link between individual expectations and savings: Do nursing home expectations matter?," Economics Working Papers 2006-05, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:aarhec:2006-05
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    Cited by:

    1. Cobb-Clark, Deborah A. & Stillman, Steven, 2006. "The Retirement Expectations of Middle-Aged Individuals," IZA Discussion Papers 2449, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    expectations; nursing home; savings;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • 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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