The Link between Individual Expectations and Savings: Do Nursing Home Expectations Matter?

TitleThe Link between Individual Expectations and Savings: Do Nursing Home Expectations Matter?
Publication TypeReport
Year of Publication2006
AuthorsKleinjans, KJ, Lee, J
Series TitleUniversity of Aarhus Department of Economics Working Paper
Document Number2006-5
InstitutionUniversity of Aarhus
CityAarhus, Denmark
KeywordsExpectations, nursing home, Savings
Abstract

Preparing for the end of life, especially for the prospect of needing long-term are, is an important issue facing older Americans. Those who reach age 65 have a 40% chance of going into a nursing home in their remaining lifetime, and about 10% of those who do will stay there for at least five years. The costs of a stay are high with on average US$70,000 annually for a private room. Long-term stays in nursing homes are, therefore, not likely, but very expensive. In this paper, we examine individual expectations about future nursing home entry and study the relationship between these expectations and savings behavior, using data from the Health and Retirement Study. We find a clear relation between subjective expectations and probability of future nursing home entry, and a positive effect of these expectations on savings behavior. Surprisingly, we find no difference of this effect by wealth group, so it seems that Medicaid eligibility in the context of nursing home entry plays no factor in the decision to save.

DOI10.2139/ssrn.1147034
Citation Key11442