THE JOING EVOLUTION OF HEALTH AND ASSETS IN LATER LIFE

National Bureau Of Economic Research, Cambridge MA

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Abstract

PROJECT SUMMARY (See instructions): SUBPROJECT 3: THE JOINT EVOLUTION OF HEALTH AND ASSETS IN LATER LIFE This subproject analyzes patterns of asset accumulation and drawdown over the course of later life, and how asset dynamics are affected by people's evolving health as they age. By looking at all assets, one can better account for the full cost of poor health, including not only out-of-pocket medical expenditures but all other costs related to poor health. The subproject will estimate the "asset cost" of poor health and how it varies by family status, by the level of assets, and across different categories of assets. It will also explore the specific mechanisms through which health may affect asset holdings, such as through work decisions and different insurance arrangements. Our models will also be used to predict the effect of current health shocks on the future evolution of assets;to predict the effect of Social Security changes on the subsequent evolution of assets;to describe the distribution of assets by family status and by health status;and to simulate the proportion of households that will "exhaust" various asset categories if past patterns of asset evolution apply prospectively. We believe that our findings will lead to greatly enhanced understanding of the financial consequences of poor health. The subproject is also important in understanding patterns of asset drawdown in later life more generally, and how different asset categories are used for different purposes and with differing draw down characteristics. For example, the subproject will consider the potential role of public and private annuity products in providing retirement income security, fielding two surveys to understand the apparent preference that many households exhibit for holding assets in a non-annuitized form.