The Link between Individual Expectations and Savings: Do Nursing Home Expectations Matter?

University of Aarhus Department of Economics Working Paper No. 2006-5

41 Pages Posted: 18 Jun 2008

See all articles by Kristin J. Kleinjans

Kristin J. Kleinjans

California State University, Fullerton - Department of Economics

Jinkook Lee

affiliation not provided to SSRN

Date Written: April 24, 2006

Abstract

Preparing for the end of life, especially for the prospect of needing long-term are, is an important issue facing older Americans. Those who reach age 65 have a 40% chance of going into a nursing home in their remaining lifetime, and about 10% of those who do will stay there for at least five years. The costs of a stay are high with on average US$70,000 annually for a private room. Long-term stays in nursing homes are, therefore, not likely, but very expensive. In this paper, we examine individual expectations about future nursing home entry and study the relationship between these expectations and savings behavior, using data from the Health and Retirement Study. We find a clear relation between subjective expectations and probability of future nursing home entry, and a positive effect of these expectations on savings behavior. Surprisingly, we find no difference of this effect by wealth group, so it seems that Medicaid eligibility in the context of nursing home entry plays no factor in the decision to save.

Keywords: expectations, nursing home, savings

JEL Classification: D12, J14, J26

Suggested Citation

Kleinjans, Kristin J. and Lee, Jinkook, The Link between Individual Expectations and Savings: Do Nursing Home Expectations Matter? (April 24, 2006). University of Aarhus Department of Economics Working Paper No. 2006-5, Available at SSRN: https://ssrn.com/abstract=1147034 or http://dx.doi.org/10.2139/ssrn.1147034

Kristin J. Kleinjans (Contact Author)

California State University, Fullerton - Department of Economics ( email )

Fullerton, CA 92834
United States

HOME PAGE: http://https://business.fullerton.edu/faculty/kristin-kleinjans

Jinkook Lee

affiliation not provided to SSRN

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