Health Disasters and Life Cycle Risk Taking

Emil Bandoni and Carolina Fugazza

Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: Medical expenditures increase sharply with age and can impose a significant finan- cial risk on the elderly, even in settings with universal health insurance. In particular, out-of-pocket medical spending remains highly skewed, with a small fraction of indi- viduals facing catastrophic costs. This paper develops a life-cycle model in which rare, idiosyncratic health shocks generate substantial out-of-pocket expenses late in life. The model demonstrates that accounting for these rare health disasters can explain the moderate risk-taking behavior observed among older investors, without invoking be- quest motives. These findings highlight the importance of tail medical risks in shaping late-life financial decisions.

Keywords: life-cycle portfolio choice; disaster risk; beta distribution; out-of-pocket medical spending (search for similar items in EconPapers)
Pages: 30 pages
Date: 2025
New Economics Papers: this item is included in nep-age and nep-dge
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:748

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