Do potential future health shocks keep older Americans from using their housing equity?
Tim Murray ()
MPRA Paper from University Library of Munich, Germany
Many retirees retain housing equity and do not utilize it to help finance spending on consumption. In this paper, I examine how older Americans (age 55+) may engage in precautionary savings where households would sell their house in the event they face an increase in out-of-pocket medical expenses due to a health shock. Using a counterfactual experiment, I find that older households are 13-percentage points less likely to own a home in their late retirement years when they know they will not have any out-of-pocket medical expenses. This indicates that many older households prefer not to own a home but choose to do so knowing they may get sick and thus are engaging in precautionary savings using their house. I conduct a policy experiment to examine how an insurance policy that would cover all out-of-pocket medical expenses would impact home ownership. I find that when an insurance policy of this nature is offered that costs four percent of income, the baseline economy has the same homeownership and moving rates as the counterfactual experiment where households do not have to pay for out-of-pocket medical expenses. This suggests that if seniors had more adequate health care coverage, they would be more willing to use the equity in their house to increase consumption in retirement.
Keywords: housing; equity; precautionary savings; Medicare; insurance (search for similar items in EconPapers)
JEL-codes: D14 E13 E21 R21 R31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-ias, nep-mac and nep-ure
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Working Paper: Do Potential Future Health Shocks Keep Older Americans from Using Their Housing Equity? (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:94463
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