TY - JOUR T1 - Can the Risk of Medical Expenditure Explain<br/>the Wealth Trajectories of Elderly Singles? JF - The Journal of Retirement SP - 67 LP - 80 DO - 10.3905/jor.2013.1.1.067 VL - 1 IS - 1 AU - Sudipto Banerjee Y1 - 2013/06/30 UR - https://pm-research.com/content/1/1/67.abstract N2 - In this article, I analyze the role of precautionary savings as a determinant of the wealth holdings of elderly singles. The novel aspect of the analysis is that the distribution of medical expenditure is allowed to be individual-specific, and the variance of medical expenditure is estimated for each individual using repeated observations on medical expenditure. To address the measurement error problem in medical expenditure, I use an instrumental variable estimator. I construct a simple life-cycle model and show that the coefficient of relative risk aversion can be identified from a log-linearized Euler equation for wealth, using the variation in the risk of medical expenditure. The results imply that precautionary savings can account for up to 56% of the wealth holdings of elderly singles. This means lowering the risk exposure of medical expenses at older ages could significantly alter the retirement asset draw-down rates and strategies.TOPICS: Wealth management, retirement, risk management ER -