Buffering Shocks to Well-Being Late in Life

Published: 2009


Consumption provides a comprehensive measurement of economic well-being. This research shows that consumption is well-insured with respect to health status and widowing. Using data from the Health and Retirement Study (HRS) and its CAMS supplement, it shows that consumption responds little to changes in health status even though adverse health generates substantial out-of-pocket medical expenses. Similarly, the effect of widowing on consumption, though substantial, is not strongly driven by changes in economic resources. Men experience little loss of monetary resources when being widowed. Women have the same overall loss in consumption as men when being widowed despite greater declines in economic resources. Hence, despite the adverse consequences for income and wealth for female widows, women experience no greater drop in consumption from losing a spouse than do men.

Key Findings

    • Consumption by older Americans is fairly well-insulated from poor health or losing a spouse.
    • Consumption falls 25 to 30 percent upon being widowed, dropping to the level of what a single individual consumes.
    • Women and men experience similar declines in consumption following the loss of a spouse, yet women’s income falls more than men’s.
    • Having an additional chronic diagnosis has no direct effect on the level of non-medical spending, even though it leads to a substantial increase in out-of-pocket medical expenses.
    • However, self-reported poor health depresses non-medical spending noticeably, because poor health reduces the desire to spend.