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Published on: September 30, 2020
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Health accidents and wealth decline in old age
Hippolyte d'Albis1, Najat El Mekkaoui2, Bérangère Legendre3
1Paris School of Economics, CNRS, 48 Bd Jourdan, 75014 Paris, France.
Social Science & Medicine (1982)
|August 4, 2023
Summary
A health shock reduces savings in older individuals, making annuities vital for financial security. This study examines how health changes impact savings and investment choices in later life.
Area of Science:
- Gerontology
- Health Economics
- Behavioral Economics
Background:
- Health shocks significantly impact financial planning for older adults.
- Imperfect annuity markets complicate resource allocation for the elderly.
- Understanding savings behavior post-health events is crucial for aging economies.
Purpose of the Study:
- To analyze the effect of health shocks on savings and portfolio choices of older individuals.
- To investigate the role of annuities in mitigating financial risks associated with poor health.
- To provide insights into resource allocation strategies for the aging population.
Main Methods:
- Theoretical framework incorporating imperfect annuity markets and altered survival probabilities.
- Difference-in-differences approach to control for age, cohort, and selection bias.
- Empirical analysis using panel data from the Survey of Health, Aging, and Retirement in Europe (SHARE).
Main Results:
- Health shocks, such as stroke or heart attack, lead to a reduction in safe savings.
- Individuals experiencing adverse health events tend to decrease their allocation to safe assets.
- Annuity investment emerges as a key strategy for managing health-related financial consequences.
Conclusions:
- Experiencing a health shock negatively affects savings behavior in older individuals.
- Annuities play a critical role in financial resilience for the elderly facing health challenges.
- Policy and financial planning should consider the interplay between health, survival probability, and savings in aging populations.
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