Working Paper: NBER ID: w13105
Authors: John Ameriks; Andrew Caplin; Steven Laufer; Stijn Van Nieuwerburgh
Abstract: 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.
Keywords: bequest motives; precautionary savings; Medicaid aversion; retirement spending
JEL Codes: D1; D91; E21; I0; J14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| strong bequest motives (D15) | low levels of spending (H59) |
| high bequest motives (D64) | save more to leave a legacy (D14) |
| Medicaid aversion (I18) | precautionary savings (D14) |
| heightened fear of Medicaid reliance (I18) | save for health-related expenses (I19) |
| low spending rates (E62) | Medicaid aversion (I18) |
| retirees without children (J26) | save more for precautionary reasons (D14) |
| bequest motives and precautionary savings (D14) | retirement spending behavior (D14) |