Why Do the Elderly Save? The Role of Medical Expenses

66 Pages Posted: 16 Jul 2009 Last revised: 14 Jul 2011

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: December 9, 2009

Abstract

This paper constructs a model of saving for retired single people that includes heterogeneity in medical expenses and life expectancies, and bequest motives. We estimate the model using AHEAD data and the method of simulated moments. Out-of-pocket medical expenses rise quickly with age and permanent income. The risk of living long and requiring expensive medical care is a key driver of saving for many higher income elderly. Social insurance programs such as Medicaid rationalize the low asset holdings of the poorest, but also benefit the rich, by insuring them against high medical expenses at the ends of their lives.

Keywords: consumption, saving and wealth, fiscal policies

JEL Classification: D91, E21, H31

Suggested Citation

De Nardi, Mariacristina and French, Eric and Jones, John B., Why Do the Elderly Save? The Role of Medical Expenses (December 9, 2009). FRB of Chicago Working Paper No. 2009-02. Available at SSRN: https://ssrn.com/abstract=1434956 or http://dx.doi.org/10.2139/ssrn.1434956

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

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

SUNY at Albany - School of Business ( email )

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