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

55 Pages Posted: 3 Mar 2015 Last revised: 25 Mar 2015

See all articles by John Ameriks

John Ameriks

The Vanguard Group, Inc.

Joseph Briggs

Board of Governors of the Federal Reserve System

Andrew Caplin

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)

Matthew D. Shapiro

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Christopher Tonetti

New York University (NYU)

Date Written: February 2015

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

Ameriks, John and Briggs, Joseph and Caplin, Andrew and Shapiro, Matthew D. and Tonetti, Christopher, Long-Term-Care Utility and Late-in-Life Saving (February 2015). NBER Working Paper No. w20973. Available at SSRN: https://ssrn.com/abstract=2572132

John Ameriks (Contact Author)

The Vanguard Group, Inc. ( email )

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Joseph Briggs

Board of Governors of the Federal Reserve System

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Andrew Caplin

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Christopher Tonetti

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