The Joy of Giving or Assisted Living? Using Strategic Surveys to Separate Bequest and Precautionary Motives
The Vanguard Group, Inc.
New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)
Federal Reserve Board
Stijn Van Nieuwerburgh
New York University Stern School of Business, Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
NBER Working Paper No. w13105
Strong bequest motives can explain low retirement spending, but so equally can strong precautionary motives. Given this identification problem, the recent tradition has been largely to ignore bequest motives. We develop a rich model of spending in retirement that allows for both motives, and introduce a "Medicaid aversion" parameter that plays a key role in determining precautionary savings. We implement a "strategic" survey to resolve the identification problem between bequest and precautionary motives. We find that strong bequest motives are too prevalent to be ignored. Moreover, Medicaid aversion is widespread, and helps explain the low spending of many middle class retirees.
Number of Pages in PDF File: 58
Date posted: June 27, 2007