Working Paper: NBER ID: w15307
Authors: Motohiro Yogo
Abstract: In a life-cycle model, a retiree faces stochastic health depreciation and chooses consumption, health expenditure, and the allocation of wealth between bonds, stocks, and housing. The model explains key facts about asset allocation and health expenditure across health status and age. The portfolio share in stocks is low overall and is positively related to health, especially for younger retirees. The portfolio share in housing is negatively related to health for younger retirees and falls significantly in age. Finally, out-of-pocket health expenditure as a share of income is negatively related to health and rises in age.
Keywords: Retirement; Health Risk; Annuities; Portfolio Choice; Housing; Risky Assets
JEL Codes: D91; G11; I10; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| health status (I12) | portfolio share in stocks (G11) |
| health status (I12) | portfolio share in housing (G51) |
| health (I19) | out-of-pocket health expenditure (H51) |
| age (J14) | out-of-pocket health expenditure (H51) |
| health expenditure (H51) | health status (I12) |