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Long-Term-Care Utility and Late-in-Life Saving

Author

Listed:
  • John Ameriks
  • Joseph S. Briggs
  • Andrew Caplin
  • Matthew D. Shapiro
  • Christopher Tonetti

Abstract

Older wealthholders spend down assets much more slowly than predicted by classic life-cycle models. This paper introduces health-dependent utility into a model in which preferences for bequests, expenditures when in need of long-term care (LTC), and ordinary consumption combine with health and longevity uncertainty to explain saving behavior. To sharply identify motives, it develops strategic survey questions (SSQs) that elicit stated preferences. The model is estimated using these SSQs and wealth data from the Vanguard Research Initiative. A robust finding is that the desire to self-insure against long-term-care risk explains a substantial fraction of the wealthholding of older Americans.

Suggested Citation

  • John Ameriks & Joseph S. Briggs & Andrew Caplin & Matthew D. Shapiro & Christopher Tonetti, 2015. "Long-Term-Care Utility and Late-in-Life Saving," NBER Working Papers 20973, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20973
    Note: AG EFG HE ME PR
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    References listed on IDEAS

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    1. Lee M. Lockwood, 2014. "Incidental Bequests and the Choice to Self-Insure Late-Life Risks," NBER Working Papers 20745, National Bureau of Economic Research, Inc.
    2. Wojciech Kopczuk & Joseph P. Lupton, 2007. "To Leave or Not to Leave: The Distribution of Bequest Motives," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 207-235.
    3. Giulio Fella, 2014. "A generalized endogenous grid method for non-smooth and non-concave problems," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 329-344, April.
    4. John Laitner & Daniel Silverman & Dmitriy Stolyarov, 2014. "Annuitized Wealth and Post-Retirement Saving," NBER Working Papers 20547, National Bureau of Economic Research, Inc.
    5. James Poterba & Steven Venti & David A. Wise, 2013. "Health, Education, and the Postretirement Evolution of Household Assets," Journal of Human Capital, University of Chicago Press, vol. 7(4), pages 297-339.
    6. Love, David A. & Palumbo, Michael G. & Smith, Paul A., 2009. "The trajectory of wealth in retirement," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 191-208, February.
    7. Eric French & John Bailey Jones, 2011. "The Effects of Health Insurance and Self‐Insurance on Retirement Behavior," Econometrica, Econometric Society, vol. 79(3), pages 693-732, May.
    8. Evans, William N & Viscusi, W Kip, 1991. "Estimation of State-Dependent Utility Functions Using Survey Data," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 94-104, February.
    9. John Ameriks & Andrew Caplin & Minjoon Lee & Matthew D. Shapiro & Christopher Tonetti, 2015. "The Wealth of Wealthholders," NBER Working Papers 20972, National Bureau of Economic Research, Inc.
    10. Karen Smith & Mauricio Soto & Rudolph G. Penner, 2009. "How Seniors Change Their Asset Holdings During Retirement," Working Papers, Center for Retirement Research at Boston College wp2009-31, Center for Retirement Research, revised Dec 2009.
    11. Asher A. Blass & Saul Lach & Charles F. Manski, 2010. "Using Elicited Choice Probabilities To Estimate Random Utility Models: Preferences For Electricity Reliability," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(2), pages 421-440, May.
    12. Victor Rios-Rull & Josep Pijoan-Mas, 2005. "Health and Heterogeneity," 2005 Meeting Papers 644, Society for Economic Dynamics.
    13. 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.
    14. 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.
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    16. John Ameriks & Andrew Caplin & Steven Laufer & Stijn Van Nieuwerburgh, 2011. "The Joy of Giving or Assisted Living? Using Strategic Surveys to Separate Public Care Aversion from Bequest Motives," Journal of Finance, American Finance Association, vol. 66(2), pages 519-561, April.
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    Citations

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    Cited by:

    1. Krueger, D. & Mitman, K. & Perri, F., 2016. "Macroeconomics and Household Heterogeneity," Handbook of Macroeconomics, Elsevier.
    2. Martin Boyer & Philippe De Donder & Claude Fluet & Marie-Louise Leroux & Pierre-Carl Michaud, 2017. "Long-Term Care Insurance: Knowledge Barriers, Risk Perception and Adverse Selection," NBER Working Papers 23918, National Bureau of Economic Research, Inc.
    3. repec:aea:aejmac:v:10:y:2018:i:3:p:71-117 is not listed on IDEAS
    4. Matthew Wiswall & Basit Zafar, 2016. "Preference for the Workplace, Human Capital, and Gender," NBER Working Papers 22173, National Bureau of Economic Research, Inc.
    5. Mariacristina De Nardi & Eric French & John Bailey Jones, 2016. "Savings After Retirement: A Survey," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 177-204, October.
    6. Martin Boyer & Philippe De Donder & Claude-Denys Fluet & Marie-Louise Leroux & Pierre-Carl Michaud, 2018. "A Canadian Parlor Room-Type Approach to the Long-Term Care Insurance Puzzle," Cahiers de recherche 1806, Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques.
    7. Svetlana Pashchenko & Ponpoje (Poe) Porapakkarm & Mariacristina De Nardi, 2017. "The Lifetime Costs of Bad Health," 2017 Meeting Papers 533, Society for Economic Dynamics.
    8. Wiswall, Matthew & Zafar, Basit, 2016. "Preference for the workplace, investment in human capital, and gender," Staff Reports 767, Federal Reserve Bank of New York, revised 01 Mar 2017.
    9. John Duffy & Yue Li, 2016. "Lifecycle Consumption Under Different Income Profiles: Experimental Evidence," Working Papers 161702, University of California-Irvine, Department of Economics.
    10. Keiko MURATA, "undated". "Dissaving by the elderly in Japan: Empirical evidence from survey data," ESRI Discussion paper series 346, Economic and Social Research Institute (ESRI).
    11. Jess Benhabib & Alberto Bisin & Mi Luo, 2015. "Wealth Distribution and Social Mobility in the US: A Quantitative Approach," NBER Working Papers 21721, National Bureau of Economic Research, Inc.
    12. Dirk Krueger & Kurt Mitman & Fabrizio Perri, 2016. "On the Distribution of the Welfare Losses of Large Recessions," NBER Working Papers 22458, National Bureau of Economic Research, Inc.
    13. Jones, John Bailey & De Nardi, Mariacristina & French, Eric & McGee, Rory & Kirschner, Justin, 2018. "The Lifetime Medical Spending of Retirees," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 103-135.
    14. Matthew Shapiro & Joseph Briggs & Chris Tonetti & Andrew Caplin & John Ameriks, 2016. "Late-in-Life Risks and the Under-Insurance Puzzle," 2016 Meeting Papers 241, Society for Economic Dynamics.
    15. Mi Luo & Matthew Shapiro & Joseph Briggs & Chris Tonetti & Andrew Caplin & John Ameriks, 2016. "Inter-generational transfers and precautionary saving," 2016 Meeting Papers 1616, Society for Economic Dynamics.
    16. John Ameriks & Joseph S. Briggs & Andrew Caplin & Minjoon Lee & Matthew D. Shapiro & Christopher Tonetti, 2017. "Older Americans Would Work Longer If Jobs Were Flexible," NBER Working Papers 24008, National Bureau of Economic Research, Inc.
    17. Rios-Rull, Jose-Victor & Kuhn, Moritz, 2016. "2013 Update on the U.S. Earnings, Income, and Wealth Distributional Facts: A View from Macroeconomics," Quarterly Review, Federal Reserve Bank of Minneapolis, issue April, pages 1-75.
    18. Fuster, Andreas & Kaplan, Greg & Zafar, Basit, 2018. "What would you do with $500? Spending responses to gains, losses, news, and loans," Staff Reports 843, Federal Reserve Bank of New York.
    19. John Ameriks & Joseph Briggs & Andrew Caplin & Matthew D. Shapiro & Christopher Tonetti, 2016. "The Long-Term-Care Insurance Puzzle: Modeling and Measurement," NBER Working Papers 22726, National Bureau of Economic Research, Inc.
    20. Radim Bohácek & Jesús Bueren & Laura Crespo & Pedro Mira & Josep Pijoan-Mas, 2018. "Inequality in Life Expectancies across Europe," Working Papers wp2018_1810, CEMFI.

    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I10 - Health, Education, and Welfare - - Health - - - General
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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