Differential Mortality, Uncertain Medical Expenses, and the Saving of Elderly Singles
People have heterogenous life expectancies: women live longer than
men, rich people live longer than poor people, and healthy people live
longer than sick people. People are also subject to heterogenous out-
of-pocket medical expense risk. We construct a rich structural model
of saving behavior for retired single households that accounts for this
heterogeneity, and we estimate the model using AHEAD data and the
method of simulated moments. We find that the risk of living long
and facing high medical expenses goes a long way toward explaining
the elderly’s savings decisions. Specifically, medical expenses that rise
quickly with both age and permanent income can explain why the
elderly singles, and especially the richest ones, run down their assets
so slowly. We also find that social insurance has a big impact on the
elderly’s savings.
