Why do the elderly save? The role of medical expenses

Mariacristina De Nardi, Eric French, John B. Jones

Research output: Contribution to journalArticlepeer-review

227 Scopus citations

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 Assets and Health Dynamics of the Oldest Old 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.

Original languageEnglish (US)
Pages (from-to)39-75
Number of pages37
JournalJournal of Political Economy
Volume118
Issue number1
DOIs
StatePublished - Feb 2010
Externally publishedYes

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