| Abstract | This paper analyzes the risky investment decisions of the elderly in the United
States. Utilizing the Health and Retirement Study data for 2002-2008, I first examine the effects of different factors on risky asset ownership employing the Heckman’s
two-step model. I then investigate the existence of a causal relationship between
health and wealth using the instrumental variable method. I discover that the incentives generated by the U.S. pension system are of paramount importance for the
risky asset investment behavior of the elderly. Those covered by private pension
plans, in particular a defined contribution plan, are found to be more prone to risk
taking. The effect of retirement on risky asset ownership varies by wealth with
the wealthy elderly investing more in risky assets when they retire. The bequest
motive, measured by number of kids, is found to decrease the investment in risky
assets at the intensive margin for both singles and couples. Yet the elderly couples
having kids are found to be more likely to invest in risky assets at the extensive
margin. I additionally find that wealth has a sizeable positive effect on the health
of the elderly.
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