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Medical Expenses and Saving in Retirement: The Case of U.S. and Sweden

Author

Listed:
  • Makoto Nakajima
  • Irina A. Telyukova

Abstract

Many U.S. households have significant wealth late in life, contrary to the predictions of a simple life-cycle model. In this paper, we document stark differences between U.S. and Sweden regarding out-of-pocket medical and long-term-care expenses late in life, and use them to investigate their role in discouraging the elderly from dissaving. Using a consumption-saving model in retirement with significant uninsurable expense risk, we find that medical expense risk accounts for a quarter of the U.S.-Sweden difference in retirees' dissaving patterns. Furthermore, medical expense risk affects primarily financial assets, while its impact on housing is limited.

Suggested Citation

  • Makoto Nakajima & Irina A. Telyukova, 2018. "Medical Expenses and Saving in Retirement: The Case of U.S. and Sweden," Opportunity and Inclusive Growth Institute Working Papers 8, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmoi:0008
    DOI: 10.21034/iwp.8
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    Cited by:

    1. Nakajima, Makoto, 2020. "Capital income taxation with housing," Journal of Economic Dynamics and Control, Elsevier, vol. 115(C).

    More about this item

    Keywords

    Household finance; Aging; Retirement saving; Health; Cross-country analysis;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • 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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