1932

Abstract

The saving patterns of retired US households pose a challenge to the basic life-cycle model of saving. The observed patterns of out-of-pocket medical expenses, which rise quickly with age and income during retirement, and heterogeneous life span risk can explain a significant portion of US saving during retirement. However, more work is needed to distinguish these precautionary saving motives from other motives, such as the desire to leave bequests. Progress toward disentangling these motivations has been made by matching other features of the data, such as public and private insurance choices. An improved understanding of whether intended bequests left to children and spouses are due to altruism, risk sharing, exchange motivations, or a combination of these factors is an important direction for future research.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-economics-080315-015127
2016-10-31
2024-06-21
Loading full text...

Full text loading...

/deliver/fulltext/economics/8/1/annurev-economics-080315-015127.html?itemId=/content/journals/10.1146/annurev-economics-080315-015127&mimeType=html&fmt=ahah

Literature Cited

  1. Adams P, Hurd MD, McFadden D, Merrill A, Ribeiro T. 2003. Healthy, wealthy, and wise? Tests for direct causal paths between health and socioeconomic status. J. Econom. 112:3–56 [Google Scholar]
  2. Ales L, Hosseini R, Jones LE. 2012. Is there ‘too much’ inequality in health spending across income groups? NBER Work. Pap. 17937 [Google Scholar]
  3. Altonji JG, Hayashi F, Kotlikoff LJ. 1992. Is the extended family altruistically linked? Direct tests using micro data. Am. Econ. Rev. 82:1177–98 [Google Scholar]
  4. Ameriks J, Briggs J, Caplin A, Shapiro MD, Tonetti C. 2015. Long-term care utility and late in life saving. Work. Pap., Vanguard Res. Initiat. [Google Scholar]
  5. Ameriks J, Caplin A, Laufer S, Nieuwerburgh SV. 2011. The joy of giving or assisted living? Using strategic surveys to separate bequest and precautionary motives. J. Finance 66:519–61 [Google Scholar]
  6. Attanasio OP, Emmerson C. 2003. Mortality, health status, and wealth. J. Eur. Econ. Assoc. 1:821–50 [Google Scholar]
  7. Attanasio OP, Kitao S, Violante G. 2010. Financing Medicare: A general equilibrium analysis. Demography and the Economy J Shoven 333–66 Chicago: Univ. Chicago Press [Google Scholar]
  8. Attanasio OP, Leicester A, Wakefield M. 2011. Do house prices drive consumption growth? The coincident cycles of house prices and consumption in the UK. J. Eur. Econ. Assoc. 9:399–435 [Google Scholar]
  9. Banks J, Blundell R, Oldfield Z, Smith JP. 2012. Housing mobility and downsizing at older ages in Britain and the USA. Economica 79:1–26 [Google Scholar]
  10. Barczyk B, Kredler M. 2016. Evaluating long-term-care policy options, taking the family seriously Unpublished manuscript, McGill Univ. [Google Scholar]
  11. Bernheim BD, Shleifer A, Summers LH. 1985. The strategic bequest motive. J. Polit. Econ. 93:1045–76 [Google Scholar]
  12. Blundell R, Crawford R, French E, Tetlow G. 2016a. Retirement wealth on both sides of the pond. Fisc. Stud. 37:1105–30 [Google Scholar]
  13. Blundell R, Pistaferri L, Saporta-Eksten I. 2016b. Consumption inequality and family labor supply. Am. Econ. Rev. 106:387–435 [Google Scholar]
  14. Braun RA, Kopecky KA, Koreshkova T. 2016. Old, sick, alone and poor: a welfare analysis of old-age social insurance programs. Rev. Econ. Stud. In press [Google Scholar]
  15. Brown J, Finkelstein A. 2008. The interaction of public and private insurance: Medicaid and the long term care insurance market. Am. Econ. Rev. 98:837–80 [Google Scholar]
  16. Brown M. 2006. Informal care and the division of end-of-life transfers. J. Hum. Resour. 41:191–219 [Google Scholar]
  17. Cagetti M. 2003. Wealth accumulation over the life cycle and precautionary savings. J. Bus. Econ. Stat. 21:339–53 [Google Scholar]
  18. Cochrane J. 1995. Time-consistent health insurance. J. Polit. Econ. 103:445–73 [Google Scholar]
  19. Davidoff T. 2010. Home equity commitment and long-term care insurance demand. J. Public Econ. 94:44–49 [Google Scholar]
  20. Davidoff T, Brown JR, Diamond PA. 2005. Annuities and individual welfare. Am. Econ. Rev. 95:1573–90 [Google Scholar]
  21. Davies JB. 1981. Uncertain lifetime, consumption, and dissaving in retirement. J. Polit. Econ. 86:561–77 [Google Scholar]
  22. Davis M. 2006. The insurance, health, and savings decisions of elderly women living alone Work. Pap., Board Gov. Fed. Reserve Syst. [Google Scholar]
  23. De Nardi M. 2004. Wealth inequality and intergenerational links. Rev. Econ. Stud. 71:743–68 [Google Scholar]
  24. De Nardi M, French E, Jones JB. 2006. Differential mortality, uncertain medical expenses, and the saving of elderly singles NBER Work. Pap. 12554 [Google Scholar]
  25. De Nardi M, French E, Jones JB. 2009. Life expectancy and old age savings. Am. Econ. Rev. Pap. Proc. 99:110–15 [Google Scholar]
  26. De Nardi M, French E, Jones JB. 2010. Why do the elderly save? The role of medical expenses. J. Polit. Econ. 118:39–75 [Google Scholar]
  27. De Nardi M, French E, Jones JB. 2013. Medicaid insurance in old age NBER Work. Pap. 19151 [Google Scholar]
  28. De Nardi M, French E, Jones JB. 2016. Couples and singles savings after retirement Unpublished manuscript, Univ. Coll. Lond., London, UK [Google Scholar]
  29. De Nardi M, French E, Jones JB, Gooptu A. 2011. Medicaid and the elderly NBER Work. Pap. 17689 [Google Scholar]
  30. De Nardi M, French E, Jones JB, McCauley J. 2015. Medical spending on the U.S. elderly. NBER Tech. Rep. 21270 [Google Scholar]
  31. Dynan KE, Skinner J, Zeldes SP. 2002. The importance of bequests and life-cycle saving in capital accumulation: a new answer. Am. Econ. Rev. 92:274–78 [Google Scholar]
  32. Dynan KE, Skinner J, Zeldes SP. 2004. Do the rich save more?. J. Polit. Econ. 112:397–444 [Google Scholar]
  33. Engen EM, Gale WG, Uccello CE. 1999. The adequacy of household saving. Brook. Pap. Econ. Act. 1999:65–165 [Google Scholar]
  34. Fang H. 2014. Insurance markets for the elderly NBER Work. Pap. 20549 [Google Scholar]
  35. Feenberg D, Skinner J. 1994. The risk and duration of catastrophic health care expenditures. Rev. Econ. Stat. 76:633–47 [Google Scholar]
  36. Finkelstein A, Luttmer EFP, Notowidigdo MJ. 2009. Approaches to estimating the health state dependence of the utility function. Am. Econ. Rev. Pap. Proc. 99:116–21 [Google Scholar]
  37. Fonseca R, Michaud PC, Galama T, Kapteyn A. 2009. On the rise of health spending and longevity Work. Pap. WR-722, RAND Corp., Santa Monica, CA [Google Scholar]
  38. French E. 2005. The effects of health, wealth and wages on labor supply and retirement behavior. Rev. Econ. Stud. 72:395–427 [Google Scholar]
  39. French E, De Nardi M, Jones JB, Baker O, Doctor P. 2006. Right before the end: asset decumulation at the end of life. Econ. Perspect. 30:2–13 [Google Scholar]
  40. French E, Doctor P, Baker O. 2007. Asset rundown after retirement: the importance of rate of return shocks. Econ. Perspect. 31:48–65 [Google Scholar]
  41. French E, Jones JB. 2004. On the distribution and dynamics of health care costs. J. Appl. Econom. 19:705–21 [Google Scholar]
  42. Fuster L, İmrohoroğlu A, İmrohoroğlu S. 2007. Elimination of social security in a dynastic framework. Rev. Econ. Stud. 74:113–45 [Google Scholar]
  43. Gale WG, Scholz JK. 1994. Intergenerational transfers and the accumulation of wealth. J. Econ. Perspect. 8:145–60 [Google Scholar]
  44. Gan L, Hurd M, McFadden D. 2003. Individual subjective survival curves. NBER Work. Pap. 9480
  45. Gomes F, Michaelides A. 2005. Optimal life-cycle asset allocation: understanding the empirical evidence. J. Finance 60:869–904 [Google Scholar]
  46. Gourinchas PO, Parker JA. 2002. Consumption over the life cycle. Econometrica 70:47–89 [Google Scholar]
  47. Grossman M. 1972. On the concept of health capital and the demand for health. J. Polit. Econ. 80:223–55 [Google Scholar]
  48. Gustman AL, Steinmeier TL. 1999. Effects of pensions on savings: analysis with data from the health and retirement study. Carnegie-Rochester Conf. Public Policy 50:271–324 [Google Scholar]
  49. Halliday TJ, He H, Zhang H. 2009. Health investment over the life-cycle Discuss. Pap. No. 4482, Inst. Zuk. Arb., Bonn, Ger. [Google Scholar]
  50. Hendren N. 2013. Private information and insurance rejections. Econometrica 81:1713–62 [Google Scholar]
  51. Hong J, Pijoan-Mas J, Rios-Rull JV. 2015. Health heterogeneity and the preferences for consumption growth Unpublished manuscript, Univ. Minn., Minneapolis, MN [Google Scholar]
  52. Hong J, Rios-Rull JV. 2012. Life insurance and household consumption. Am. Econ. Rev. 102:3701–30 [Google Scholar]
  53. Hubbard RG, Skinner J, Zeldes SP. 1994. The importance of precautionary motives in explaining individual and aggregate saving. Carnegie-Rochester Conf. Public Policy 40:59–125 [Google Scholar]
  54. Hugonnier J, Pelgrin F, St-Amour P. 2012. Health and (other) asset holdings. Rev. Econ. Stud. 57:779–813 [Google Scholar]
  55. Hurd MD. 1987. Savings of the elderly and desired bequests. Am. Econ. Rev. 77:298–312 [Google Scholar]
  56. Hurd MD. 1989. Mortality risk and bequests. Econometrica 57:779–813 [Google Scholar]
  57. Hurd MD. 1999. Mortality risk and consumption by couples NBER Work. Pap. 7048 [Google Scholar]
  58. Hurd MD, McFadden D, Merrill A. 1999. Predictors of mortality among the elderly NBER Work. Pap. 7440 [Google Scholar]
  59. Hurd MD, Smith JP. 1999. Anticipated and actual bequests NBER Work. Pap. 7380 [Google Scholar]
  60. Inkmann J, Michaelides A. 2012. Can the life insurance market provide evidence for a bequest motive?. J. Risk Insur. 79:671–95 [Google Scholar]
  61. Jeske K, Kitao S. 2009. U.S. tax policy and health insurance demand: Can a regressive policy improve welfare?. J. Monet. Econ. 56:210–21 [Google Scholar]
  62. Juster TF, Smith JP, Stafford F. 1998. The measurement and structure of household wealth. Lab. Econ. 6:253–75 [Google Scholar]
  63. Khwaja A. 2010. Estimating willingness to pay for Medicare using a dynamic life-cycle model of demand for health insurance. J. Econom. 156:130–47 [Google Scholar]
  64. Koijen RSJ, van Nieuwerburgh S, Yogo M. 2016. Health and mortality delta: assessing the welfare cost of household insurance choice. J. Financ. 71:957–1010 [Google Scholar]
  65. Kopczuk W. 2007. Bequest and tax planning: evidence from estate tax returns. Q. J. Econ. 122:1801–54 [Google Scholar]
  66. Kopczuk W, Lupton J. 2007. To leave or not to leave: the distribution of bequest motives. Rev. Econ. Stud. 74:207–35 [Google Scholar]
  67. Kopecky K, Koreshkova T. 2014. The impact of medical and nursing home expenses and social insurance policies on savings and inequality. Am. Econ. J. Macroecon. 6:29–72 [Google Scholar]
  68. Kotlikoff LJ. 1988. Health expenditures and precautionary savings. What Determines Savings? LJ Kotlikoff 141–62 Cambridge, MA: MIT Press [Google Scholar]
  69. Kotlikoff LJ, Summers LH. 1981. The role of intergenerational transfers in aggregate capital accumulation. J. Polit. Econ. 89:706–32 [Google Scholar]
  70. Laitner J, Juster TF. 1996. New evidence on altruism: a study of TIAA-CREF retirees. Am. Econ. Rev. 86:893–908 [Google Scholar]
  71. Laitner J, Silverman D, Stolyarov D. 2014. Annuitized wealth and post-retirement saving NBER Work. Pap. 20547 [Google Scholar]
  72. Laitner J, Sonnega A. 2010. Intergenerational transfers in data from the Health and Retirement Study Work. Pap. 238, Univ. Mich., Ann Arbor, MI [Google Scholar]
  73. Li W, Yao R. 2007. The life-cycle effects of house price changes. J. Money Credit Bank. 39:1375–409 [Google Scholar]
  74. Lockwood LM. 2012. Bequest motives and the annuity puzzle. Rev. Econ. Dyn. 15:226–43 [Google Scholar]
  75. Lockwood LM. 2014. Incidental bequests: bequest motives and the choice to self-insure late-life risks NBER Work. Pap. 20745 [Google Scholar]
  76. Love DA, Palumbo M, Smith P. 2009. The trajectory of wealth in retirement. J. Public Econ. 93:191–208 [Google Scholar]
  77. Love DA, Smith PA. 2010. Does health affect portfolio choice?. Health Econ 19:1441–60 [Google Scholar]
  78. Low H, Pistaferri L. 2010. Disability risk, disability insurance and life cycle behavior NBER Work. Pap. 15962 [Google Scholar]
  79. Marshall S, McGarry K, Skinner JS. 2011. The risk of out-of-pocket health care expenditure at the end of life. Explorations in the Economics of Aging DA Wise 101–28 Chicago: Univ. Chicago Press [Google Scholar]
  80. Mazzocco M. 2007. Household intertemporal behavior: a collective characterization and empirical tests. Rev. Econ. Stud. 74:857–95 [Google Scholar]
  81. McClellan M, Skinner J. 2006. The incidence of Medicare. J. Public Econ. 90:257–76 [Google Scholar]
  82. McGarry K, Schoeni RF. 1997. Transfer behavior within the family: results from the asset and health dynamics study. J. Gerontol. Ser. B Psychol. Sci. Soc. Sci. 52B:82–92 [Google Scholar]
  83. Mirer T. 1979. The wealth-age relation among the aged. Am. Econ. Rev. 69:435–43 [Google Scholar]
  84. Mitchell OS, Poterba JM. 1999. New evidence on the money's worth of individual annuities. Am. Econ. Rev. 89:1299–318 [Google Scholar]
  85. Modigliani F. 1988. Measuring the contribution of intergenerational transfers to total wealth: conceptual issues and empirical findings. Modeling the Accumulation and Distribution of Wealth D Kessler, A Masson 21–52 Oxford, UK: Clarendon Press [Google Scholar]
  86. Nakajima M, Telyukova I. 2012. Home equity in retirement Unpublished manuscript, Fed. Reserve Bank Phila. [Google Scholar]
  87. Nakajima M, Telyukova I. 2013. Housing in retirement across countries. Work. Pap., Boston Coll. Cent. Retire. Res., Chestnut Hill, MA
  88. Nakajima M, Telyukova I. 2014. Reverse mortgage loans: a quantitative analysis Fed. Reserve Bank Phila. Work. Pap. 14-27 [Google Scholar]
  89. Ozkan S. 2014. Preventive versus curative medicine: a macroeconomic analysis of health care over the life cycle Unpublished manuscript, Univ. Toronto [Google Scholar]
  90. Palumbo MG. 1999. Uncertain medical expenses and precautionary saving near the end of the life cycle. Rev. Econ. Stud. 66:395–421 [Google Scholar]
  91. Pang G, Warshawsky M. 2010. Optimizing the equity-bond-annuity portfolio in retirement: the impact of uncertain health expenses. Insur. Math. Econ. 46:198–209 [Google Scholar]
  92. Pashchenko S. 2013. Accounting for non-annuitization. J. Public Econ. 98:53–67 [Google Scholar]
  93. Pashchenko S, Porapakkarm P. 2013a. Quantitative analysis of health insurance reform: separating regulation from redistribution. Rev. Econ. Dyn. 16:383–404 [Google Scholar]
  94. Pashchenko S, Porapakkarm P. 2013b. Work incentives of Medicaid beneficiaries and the role of asset testing Unpublished manuscript, Uppsala Univ. [Google Scholar]
  95. Pashchenko S, Porapakkarm P. 2015a. Reducing medical spending of the publicly insured: the case for cash-out option Unpublished manuscript, Univ. Surrey [Google Scholar]
  96. Pashchenko S, Porapakkarm P. 2015b. Welfare costs of reclassification risk in the health insurance market. J. Macroecon. 45:21–44 [Google Scholar]
  97. Peijnenburg K, Nijman T, Werker BJM. 2016. Health cost risk: a potential solution to the annuity puzzle. Econ. J. In press. doi: 10.1111/ecoj.12345 [Google Scholar]
  98. Poterba JM, Venti SF, Wise DA. 2010. The asset cost of poor health NBER Work. Pap. 16389 [Google Scholar]
  99. Poterba JM, Venti SF, Wise DA. 2011. The composition and drawdown of wealth in retirement. J. Econ. Perspect. 25:95–117 [Google Scholar]
  100. Reichling F, Smetters K. 2015. Optimal annuitization with stochastic mortality probabilities. Am. Econ. Rev. 105:3273–320 [Google Scholar]
  101. Robinson J. 1996. A long-term-care status transition model. The Old-Age Crisis—Actuarial Opportunities: The 1996 Bowles Symposium JC Hickman 72–79 Schaumburg, IL: Soc. Actuar. [Google Scholar]
  102. Scholz JK, Seshadri A. 2013. Health and wealth in a lifecycle model Unpublished manuscript, Univ. Mich. Retire. Res. Cent., Ann Arbor, MI [Google Scholar]
  103. Scholz JK, Seshadri A, Khitatrakun S. 2006. Are Americans saving optimally for retirement?. J. Polit. Econ. 114:607–43 [Google Scholar]
  104. Shorrocks AF. 1975. The age-wealth relationship: a cross-section and cohort analysis. Rev. Econ. Stat. 55:155–63 [Google Scholar]
  105. Smith JP. 1999. Healthy bodies and thick wallets: the dual relation between health and economic status. J. Econ. Perspect. 13:144 [Google Scholar]
  106. Spillman BC, Lubitz J. 2000. The effect of longevity on spending for acute and long-term care. N. Engl. J. Med. 342:1409–15 [Google Scholar]
  107. Venti SF, Wise DA. 2004. Aging and housing equity: another look. Perspectives on the Economics of Aging DA Wise 127–80 Chicago, IL: Univ. Chicago Press [Google Scholar]
  108. Waldron H. 2007. Trends in mortality differentials and life expectancy for male social security-covered workers, by socioeconomic status. Soc. Secur. Bull. 67:1–28 [Google Scholar]
  109. Wolff E. 2004. Changes in household wealth in the 1980s and 1990s in the U.S. Work. Pap. 407, Levy Econ. Inst., Annandale-on-Hudson, NY
  110. Yaari ME. 1965. Uncertain lifetime, life insurance, and theory of the consumer. Rev. Econ. Stud. 32:137–50 [Google Scholar]
  111. Yang F. 2009. Consumption over the life cycle: How different is housing?. Rev. Econ. Dyn. 12:423–43 [Google Scholar]
  112. Yogo M. 2016. Portfolio choice in retirement: health risk and the demand for annuities, housing, and risky assets. J. Monet. Econ. 80:17–34 [Google Scholar]
/content/journals/10.1146/annurev-economics-080315-015127
Loading
/content/journals/10.1146/annurev-economics-080315-015127
Loading

Data & Media loading...

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error