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

American Economic Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

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

  • Makoto Nakajima
  • Irina A. Telyukova
American Economic Journal: Macroeconomics (Forthcoming)

Abstract

Many U.S. households have significant wealth late in life, contrary to the predictions of a simple life-cycle model. By comparison, retirees in Sweden decumulate wealth more quickly while facing smaller out-of-pocket medical expense risks late in life. In this paper, we investigate how well the latter can account for the former, using a full life-cycle consumption-saving model. We find that medical expense level and risk account for 32-59% of the U.S.-Sweden difference in retirees’ speed of wealth decumulation, depending on age. We also show that financing and coverage of health insurance affect wealth decumulation patterns in retirement.

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