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 D. Shapiro, Christopher Tonetti
January 2015Working Paper No. 3484

Older wealthholders spend down assets slowly. To study this pattern, the paper introduces health-dependent utility into a model in which different preferences for bequests, expenditures when in need of long-term care (LTC), and ordinary consumption combine with health and longevity uncertainty to determine saving behavior. To help separately identify motives, it develops Strategic Survey Questions (SSQs) that elicit stated preferences. The model is estimated using new SSQ and wealth data from the Vanguard Research Initiative. Estimates of the health-state utility function imply that motives associated with LTC are significantly more important than bequest motives in determining late in life saving.

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