The saving patterns of retired US households pose a challenge to the basic life-cycle model of saving. The observed patterns of out-of-pocket medical expenses, which rise quickly with age and income during retirement, and heterogeneous life span risk can explain a significant portion of US saving during retirement. However, more work is needed to distinguish these precautionary saving motives from other motives, such as the desire to leave bequests. Progress toward disentangling these motivations has been made by matching other features of the data, such as public and private insurance choices. An improved understanding of whether intended bequests left to children and spouses are due to altruism, risk sharing, exchange motivations, or a combination of these factors is an important direction for future research.
Authors
Eric French
Eric is the Montague Burton Professor of Industrial Relations and Labour Economics at the University of Cambridge and Professor of Economics at UCL.
Mariacristina De Nardi
Mariacristina is an Research Fellow at the IFS and also a Professor in the Economics Department at the University of Minnesota.
John Bailey Jones
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