Working Paper: NBER ID: w20745
Authors: Lee M. Lockwood
Abstract: Despite facing significant uncertainty about their lifespans and health care costs, most retirees do not buy annuities or long-term care insurance. In this paper, I find that retirees' saving and insurance choices are highly inconsistent with standard life cycle models in which people care only about their own consumption but match well models in which bequests are luxury goods. Bequest motives tend to reduce the value of insurance by reducing the opportunity cost of precautionary saving. The results suggest that bequest motives significantly increase saving and significantly decrease purchases of long-term care insurance and annuities.
Keywords: bequest motives; retirement; insurance; saving behavior
JEL Codes: D91; E21; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bequest motives (D64) | retirees' saving behavior (D14) |
| bequest motives (D64) | purchase of long-term care insurance (G52) |
| bequest motives (D64) | retirees' insurance choices (J26) |
| retirees' saving behavior (D14) | purchase of long-term care insurance (G52) |
| bequest motives (D64) | self-insurance through precautionary savings (G52) |