The Joy of Giving or Assisted Living? Using Strategic Surveys to Separate Bequest and Precautionary Motives
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NBER Working Paper No. 13105
Issued in May 2007
NBER Program(s): AG AP CH EFG HC LS PE
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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.
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