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

Author

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  • 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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    Citations

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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).
    2. Eric French & John Bailey Jones & Elaine Kelly & Jeremy McCauley, 2018. "End-of-Life Medical Expenses," Working Paper 18-18, Federal Reserve Bank of Richmond.
    3. John Bailey Jones & Aaron Steelman, 2019. "Lifetime Medical Spending of Retirees," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, issue May.
    4. Ghimire, Umesh, 2022. "The Impact of Health on Wealth: Empirical Evidence," MPRA Paper 113850, University Library of Munich, Germany.
    5. Conesa, Juan Carlos & Kehoe, Timothy J. & Nygaard, Vegard M. & Raveendranathan, Gajendran, 2020. "Implications of increasing college attainment for aging in general equilibrium," European Economic Review, Elsevier, vol. 122(C).
    6. FUKAI Taiyo & ICHIMURA Hidehiko & KITAO Sagiri & MIKOSHIBA Minamo, 2021. "Medical Expenditures over the Life Cycle: Persistent Risks and Insurance," Discussion papers 21073, Research Institute of Economy, Trade and Industry (RIETI).
    7. Makoto Nakajima & Irina A. Telyukova, 2020. "Home Equity In Retirement," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(2), pages 573-616, May.
    8. Umesh Ghimire, 2020. "The Impact of Health on Wealth: Empirical Evidence," Working papers 2020-19, University of Connecticut, Department of Economics.

    More about this item

    Keywords

    Household finance; Aging; retirement savings; Health; Cross-country analysis;
    All these keywords.

    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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