Differential Mortality, Uncertain Medical Expenses, and the Saving of Elderly Singles

45 Pages Posted: 17 Oct 2006 Last revised: 15 Jan 2007

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: October 2006

Abstract

People have heterogenous life expectancies: women live longer than men, rich people live longer than poor people, and healthy people live longer than sick people. People are also subject to heterogenous out-of-pocket medical expense risk. We construct a rich structural model of saving behavior for retired single households that accounts for this heterogeneity, and we estimate the model using AHEAD data and the method of simulated moments. We find that the risk of living long and facing high medical expenses goes a long way toward explaining the elderly's savings decisions. Specifically, medical expenses that rise quickly with both age and permanent income can explain why the elderly singles, and especially the richest ones, run down their assets so slowly. We also find that social insurance has a big impact on the elderly's savings.

Suggested Citation

De Nardi, Mariacristina and French, Eric and Jones, John B., Differential Mortality, Uncertain Medical Expenses, and the Saving of Elderly Singles (October 2006). NBER Working Paper No. w12554, Available at SSRN: https://ssrn.com/abstract=933599

Mariacristina De Nardi (Contact Author)

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Eric French

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John B. Jones

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SUNY at Albany - School of Business ( email )

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