Long-Term-Care Utility and Late-in-Life Saving

Long-Term-Care Utility and Late-in-Life Saving

By
John Ameriks, Joseph Briggs, Andrew Caplin, Matthew Shapiro, Christopher Tonetti
Journal of Political Economy. June
2020, Vol. forthcoming

Older wealthholders spend down assets much more slowly than predicted by classic life-cycle models. This paper introduces health-dependent utility into a model with incomplete markets 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. The desire to self-insure against long-term-care risk explains a substantial fraction of the wealthholding of many older Americans.