Joint Lifetime Financial, Work, and Health Decisions: Thrifty and Healthy Enough for the Long Run?

Details

Serval ID
serval:BIB_3C59BC956422
Type
Report: a report published by a school or other institution, usually numbered within a series.
Publication sub-type
Working paper: Working papers contain results presented by the author. Working papers aim to stimulate discussions between scientists with interested parties, they can also be the basis to publish articles in specialized journals
Collection
Publications
Institution
Title
Joint Lifetime Financial, Work, and Health Decisions: Thrifty and Healthy Enough for the Long Run?
Author(s)
Mesquida Y., St-Amour P.
Institution details
HEC Lausanne
Issued date
2016
Language
english
Abstract
US individuals are separately admonished for not being healthy enough, and for insufficient savings in both financial and pension assets. However, characterizing joint health, and assets sufficiency becomes more challenging when exposure to death, and sickness risks can be altered through forward-looking health spending and leisure decisions made by agents. We consider such a framework to reassess joint adequacy in health capital, financial and pension wealth. Our benchmark is flexible enough to admit either healthy-and-thrifty, or live-fast-die-young optimal strategies. Nevertheless, observed choices are found to be inconsistent with rational planning. Individuals in the data are not healthy enough, and consequently face a shorter life horizon than expected. Moreover, full insurance, and age-increasing wages would optimally point to more medical expenditures and less leisure to maintain health than currently observed. As a consequence, observed post-retirement income is too low, and financial wealth is depleted too rapidly, leading to a sharp drop in consumption after 65 that is inconsistent with optimizing behavior. Relaxing assumptions on complete health insurance and pension regimes only partially alleviates these discrepancies.
Keywords
Savings Adequacy, Defined Benefits and Contributions Plans, Consumption, Leisure, Health Expenditures, Mortality and Morbidity Risks
Create date
19/10/2017 10:46
Last modification date
21/08/2019 5:13
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