Working Paper: NBER ID: w20973
Authors: John Ameriks; Joseph S. Briggs; Andrew Caplin; Matthew D. Shapiro; Christopher Tonetti
Abstract: Older wealthholders spend down assets much more slowly than predicted by classic life-cycle models. This paper introduces health-dependent utility into a model in which preferences for bequests, expenditures when in need of long-term care (LTC), and ordinary consumption combine with health and longevity uncertainty to explain saving behavior. To sharply identify motives, it develops strategic survey questions (SSQs) that elicit stated preferences. The model is estimated using these SSQs and wealth data from the Vanguard Research Initiative. A robust finding is that the desire to self-insure against long-term-care risk explains a substantial fraction of the wealthholding of older Americans.
Keywords: Long-term care; Wealth; Saving behavior; Health-dependent utility
JEL Codes: D91; E21; H31; I10; J14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| LTC-related motives + bequest motives (D15) | late-in-life savings (D14) |
| health and economic environment features (I15) | saving behaviors (D10) |
| LTC risk perception (G52) | wealth accumulation (E21) |
| health-dependent utility (D11) | saving behavior of older individuals (D14) |
| LTC spending preference (D15) | bequest preference (D14) |