TY  - JOUR
AU  - Nardi,Mariacristina De
AU  - French,Eric
AU  - Jones,John Bailey
TI  - Why do the Elderly Save? The Role of Medical Expenses
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15149
PY  - 2009
Y2  - July 2009
UR  - http://www.nber.org/papers/w15149
L1  - http://www.nber.org/papers/w15149.pdf
N1  - Author contact info:
Mariacristina De Nardi
Federal Reserve Bank of Chicago
230 South LaSalle St.
Chicago, IL 60604
Tel: 312/322-5769
Fax: 312/322-2357
E-Mail: denardim@nber.org

Eric French
Research Department
Federal Reserve Bank of Chicago
230 South LaSalle Street
Chicago, IL  60604
E-Mail: efrench@frbchi.org

John Bailey Jones
Department of Economics
BA-113B
University at Albany
State University of New York
Albany, NY 12222
Tel: 518/442-4926
E-Mail: jbjones@albany.edu
AB  - This paper constructs a rich model of saving for retired single people.  Our framework allows for bequest motives and heterogeneity in medical expenses and life expectancies.  We estimate the model using AHEAD data and the method of simulated moments. The data show that out-of-pocket medical expenses rise quickly with both age and permanent income. For many elderly people the risk of living long and requiring expensive medical care is a more important driver of old age saving than the desire to leave bequests. Social insurance programs such as Medicaid rationalize the low asset holdings of the poorest. These government programs, however, also benefit the rich because they insure them against their worst nightmares about their very old age: either not being able to afford the medical care that they need, or being left destitute by huge medical bills.
ER  -