Medical Expenses and Saving in Retirement: The Case of U.S. and Sweden

Nakajima, Makoto; Telyukova, Irina A.

doi:10.21034/iwp.8

Working Paper

Medical Expenses and Saving in Retirement: The Case of U.S. and Sweden

Abstract: Many U.S. households have significant wealth late in life, contrary to the predictions of a simple life-cycle model. In this paper, we document stark differences between U.S. and Sweden regarding out-of-pocket medical and long-term-care expenses late in life, and use them to investigate their role in discouraging the elderly from dissaving. Using a consumption-saving model in retirement with significant uninsurable expense risk, we find that medical expense risk accounts for a quarter of the U.S.-Sweden difference in retirees' dissaving patterns. Furthermore, medical expense risk affects primarily financial assets, while its impact on housing is limited.

Keywords: Household finance; Aging; retirement savings; Health; Cross-country analysis;

JEL Classification: D14; E21; J14; J26;

https://doi.org/10.21034/iwp.8