IDEAS home Printed from
   My bibliography  Save this paper

The Interaction between Consumption and Health in Retirement


  • John Karl Scholz

    (University of Wisconsin-Madison)

  • Ananth Seshadri

    (University of Wisconsin-Madison)


We study the interaction between consumption and health in retirement. Our main contribution is the estimation of a consumption Euler equation taking health into consideration. The Euler equation is derived from a model of consumption in retirement with three important building blocks of health: health shocks, health as an investment and health as a provider of utility. We estimate the Euler equation using data from the Health and Retirement Study (HRS) and Consumption and Activities Mail Survey (CAMS). The estimates suggest that health is an important determinant of utility. We use the estimated model to study the empirical significance of the three building blocks of health. We find that health shocks play an important role in slowing down the decline of consumption with age in retirement. We also find that including health into the utility function could help explain the heterogeneous consumption-age profiles related to health. Finally, we find that health investments, such as physical exercise, have a significant effect on the evolutions of both health and consumption in retirement.

Suggested Citation

  • John Karl Scholz & Ananth Seshadri, 2016. "The Interaction between Consumption and Health in Retirement," Working Papers wp344, University of Michigan, Michigan Retirement Research Center.
  • Handle: RePEc:mrr:papers:wp344

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Emily Oster & Ira Shoulson & E. Ray Dorsey, 2012. "Limited Life Expectancy, Human Capital and Health Investments: Evidence from Huntington Disease," NBER Working Papers 17931, National Bureau of Economic Research, Inc.
    2. Joseph J. Doyle Jr., 2005. "Health Insurance, Treatment and Outcomes: Using Auto Accidents as Health Shocks," NBER Working Papers 11099, National Bureau of Economic Research, Inc.
    3. Yogo, Motohiro, 2016. "Portfolio choice in retirement: Health risk and the demand for annuities, housing, and risky assets," Journal of Monetary Economics, Elsevier, vol. 80(C), pages 17-34.
    4. Rosen, Sherwin, 1988. "The Value of Changes in Life Expectancy," Journal of Risk and Uncertainty, Springer, vol. 1(3), pages 285-304, September.
    5. Grossman, Michael, 1972. "On the Concept of Health Capital and the Demand for Health," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 223-255, March-Apr.
    6. Fonseca, Raquel & Michaud, Pierre-Carl & Galama, Titus & Kapteyn, Arie, 2009. "On The Rise of Health Spending and Longevity," IZA Discussion Papers 4622, Institute for the Study of Labor (IZA).
    7. Kevin M. Murphy & Robert H. Topel, 2006. "The Value of Health and Longevity," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 871-904, October.
    8. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2006. "Are Americans Saving "Optimally" for Retirement?," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 607-643, August.
    9. Michael G. Palumbo, 1999. "Uncertain Medical Expenses and Precautionary Saving Near the End of the Life Cycle," Review of Economic Studies, Oxford University Press, vol. 66(2), pages 395-421.
    10. Joseph J. Doyle, 2005. "Health Insurance, Treatment and Outcomes: Using Auto Accidents as Health Shocks," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 256-270, May.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Poterba, James M. & Venti, Steven F. & Wise, David A., 2017. "The asset cost of poor health," The Journal of the Economics of Ageing, Elsevier, vol. 9(C), pages 172-184.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    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:mrr:papers:wp344. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (MRRC Administrator). General contact details of provider: .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.