Medical Expenses and Saving in Retirement: The Case of the United States and Sweden

Makoto Nakajima () and Irina A. Telyukova

American Economic Journal: Macroeconomics, 2025, vol. 17, issue 1, 161-202

Abstract: Many US 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 percent of the US-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.

JEL-codes: D15 G22 G51 I13 J14 J26 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1257/mac.20220211

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