Why Do the Elderly Save? The Role of Medical Expenses

57 Pages Posted: 21 Jul 2009 Last revised: 4 Jul 2010

See all articles by Mariacristina De Nardi

Mariacristina De Nardi

University College London, Economics Dpt.; Federal Reserve Bank of Chicago; National Bureau of Economic Research (NBER) - Public Economics

Eric French

Department of Economics; Institute for Fiscal Studies (IFS)

John Bailey Jones

Federal Reserve Bank of Richmond; SUNY at Albany - School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: July 2009

Abstract

This paper constructs a rich model of saving for retired single people. Our framework allows for bequest motives and heterogeneity in medical expenses and life expectancies. We estimate the model using AHEAD data and the method of simulated moments. The data show that out-of-pocket medical expenses rise quickly with both age and permanent income. For many elderly people the risk of living long and requiring expensive medical care is a more important driver of old age saving than the desire to leave bequests. Social insurance programs such as Medicaid rationalize the low asset holdings of the poorest. These government programs, however, also benefit the rich because they insure them against their worst nightmares about their very old age: either not being able to afford the medical care that they need, or being left destitute by huge medical bills.

Suggested Citation

De Nardi, Mariacristina and French, Eric and Jones, John B., Why Do the Elderly Save? The Role of Medical Expenses (July 2009). NBER Working Paper No. w15149. Available at SSRN: https://ssrn.com/abstract=1434664

Mariacristina De Nardi (Contact Author)

University College London, Economics Dpt. ( email )

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Eric French

Department of Economics ( email )

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John B. Jones

Federal Reserve Bank of Richmond ( email )

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HOME PAGE: http://www.albany.edu/~jbjones

SUNY at Albany - School of Business ( email )

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