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Differential mortality, uncertain medical expenses, and the saving of elderly singles

  • Mariacristina De Nardi
  • Eric French
  • John Bailey Jones

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 show that all of these dimensions of heterogeneity are large for the elderly. Can these factors explain their lack of asset decumulation even at very advanced ages and the high saving rate of the income-rich elderly? We answer this question in two steps. We first estimate the uncertainty about mortality and outof pocket medical expenditures as functions of sex, health, permanent income, and age. We then formalize a rich structural model of saving behavior for retired single households, and we estimate it by using the method of simulated moments.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-05-13.

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Date of creation: 2005
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Handle: RePEc:fip:fedhwp:wp-05-13
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