Health Risk in Retirement and Retirement Wealth

Published: 2006
Project ID: UM06-18


With the approaching retirement of the baby boom cohort and concerns about the solvency of Social Security, there has been growing interest in understanding savings behavior. Being able to characterize the underlying motivation for savings will be important to researchers and policy makers as they evaluate the effect of different Social Security reform proposals on the savings and consumption of future retirees. This project focuses on the largest uninsured health risk currently faced by the elderly – nursing home expenses. Using data from the Survey of Consumer Finances and the Health and Retirement Study, the research will examine the extent to which working-aged households self-insure against the risk of out-of-pocket nursing home expenses. The findings will allow policymakers to address two important questions that have surfaced in the current debate over Social Security reform. The first: are households forward-looking and do they save for an event well into the future? Second: do households account for future risks when making saving decisions? Answers to these questions will provide a framework for policy-makers when evaluating Social Security reform proposals. In addition, because savings behavior might be affected by the interaction of reform related risk and existing risks, the impact of any new risk should be evaluated within the context of current risk. This research provides the necessary first steps towards that end.