This paper utilizes the Asset and Health Dynamics of the Oldest Old (AHEAD) Panel to test for the absence of causal links from socio-economic status (SES) to health innovations and mortality, and from health conditions to innovations in wealth. We conclude that there is no direct causal link from SES to mortality or to incidence of most sudden onset health conditions (accidents and some acute conditions), but there is an association of SES with incidence of gradual onset health conditions (mental conditions, and some degenerative and chronic conditions), due either to causal links or to persistent unobserved behavioral or genetic factors that have a common influence on both SES and innovations in health. We conclude that there is no direct causal link from health status to innovations in wealth.

There are vast differences in wealth holdings, even among households in similar age groups. In addition, a large percentage of U.S. households arrive close to retirement with little or no wealth. While many explanations can be found to rationalize these facts, approximately thirty percent of households whose head is close to retirement have done little or no planning for retirement. Planning is shaped by the experience of other individuals: individuals learn to plan for retirement from older siblings. They also learn from the experience of old parents. In particular, unpleasant events, such as financial difficulties and health shocks at the end of life, provide incentives toward planning. In addition, planning affects wealth levels as well as portfolio choice. Individuals who plan are more likely to hold large amounts of wealth and to invest their wealth holdings in high return assets, such as stocks. Thus, planning plays an important role in explaining the saving behavior of many households.

Abstract not found

ABSTRACT: Differential morbidity and mortality by socio-economic status (SES) have been observed over a wide range of data and populations, with higher SES associated with lower morbidity and mortality. The association has been attributed to differential access to medical services, to the impact of disabilities and medical costs on savings, and to genetic and behavioral factors that influence economic productivity, tastes for accumulation, and exposure to health hazards. We examine these relationships in the population of individuals aged 70 or over, using the Asset and Health Dynamics of the Oldest Old (AHEAD) panel survey sponsored by the Institute on Aging of the National Institute of Health. We find in this elderly population that there is a strong association between SES and prevalence of health conditions. However, there is only weak evidence that SES influences the incidence of new health conditions, controlling for existing conditions, or that the incidence of new health conditions influences SES. We conclude that in this Medicare-eligible population, the wealthy are either unable to buy significant add-on medical services, or do not derive significantly better health outcomes from the additional medical services they buy. The paper also treats a number of technical issues in the analysis of panel data, including cross-wave imputation of missing and incomplete responses, and handling errors in measured assets. A revision of this paper to be completed in Spring 2000 will include results from the third wave of AHEAD, including revised data on mortality by cause.

In this paper, we rely on a direct question about precautionary wealth from the 1995 and 1998 Survey of Consumer Finances to assess the importance of the precautionary saving motive. In this survey, a new question has been designed to elicit the amount of desired precautionary savings. This allows us to bound the amount of precautionary accumulation and to overcome many of the problems of previous works on this topic. We find that a precautionary saving motive exists and affects almost every type of household. This motive is particularly important for two groups: older households and business owners, but it also affects young and middle-age households who do not have businesses. Overall, we provide strong evidence that we need to take the precautionary saving motive into account when modeling saving behavior.

This paper utilizes the Asset and Health Dynamics of the Oldest Old (AHEAD) Panel to test for the absence of causal links from socio-economic status (SES) to innovations in health or mortality, and from health conditions to innovations in wealth. We conclude that there is no causal link from SES to mortality or to incidence of sudden onset health conditions (accidents and, probably, acute conditions), but there is an association of SES with incidence of gradual onset health conditions (mental conditions, and, probably, degenerative and chronic conditions), due either to causal links or to persistent unobserved behavioral or genetic factors that have a common influence on both SES and innovations in health. We conclude that there is no causal link from health status to innovations in wealth.

Why do people (not) annuitize? While several theoretical studies have tried to address this question, empirical evidence on annuitization is scant. To fill this void, I use a novel dataset with more than 140,000 actual payout decisions made by employees choosing between monthly income for life (i.e., an annuity) and a lump sum payment. Four sets of results emerge from my analysis. First, there is no evidence in this sample of an annuity puzzle: more than two-thirds of employees select an annuity. Second, standard explanations of annuitization, such as asymmetric information on life expectancy and risk aversion, are confirmed in the data: women, higher earners and older employees are more likely to take an annuity. Third, I document that recent stock market performance affect this payout decision: after positive (negative) stock market returns employees are less (more) likely to choose an annuity. Finally, consistent with quasi-hyperbolic discounting and preferences for immediacy, I find that procrastinators are more likely to take the lump sum. Robustness checks for these results and their policy implications conclude the paper.

Technical papers in this series are preliminary and are circulated to stimulate discussion and critical comment. These papers are not subject to CBO’s formal review and editing processes. The analysis and conclusions expressed in them are those of the authors and should not be interpreted as those of the Congressional Budget Office. References in publications should be cleared with the authors. Papers in this series can be obtained by sending an e-mail to

Preliminary draft. Please do not distribute without permission. The "Great Recession " of 2008 caused widespread and largely unanticipated losses of wealth over a short period of time. A simple life-cycle model of labor supply and consumption implies that exogenous wealth shocks should a ect labor supply decisions. However, existing studies measuring the impact of wealth shocks on retirement timing have not consistently supported such a model. This paper uses pre- and post-crash data from fortuitously-times surveys by the Health and Retirement Study and the Cognitive Economics Study to examine the relationship between the wealth shocks from the recent stock and housing market crises and planned retirement timing. Consistent with the simple model's predictions, analyses show that stock and housing wealth losses are associated with an increase in planned retirement age on the order of a few weeks to a few months for the average older American, but up to several months for some segments of the population. 1

Preliminary–please do not cite without permission In the US, women tend to have lower levels of financial literacy than men. This is consistent with a household division of labor in which men manage finances. However, women also tend to outlive their husbands, so they will eventually need to take over this task. Using a new survey of older couples, I find that women acquire additional financial literacy as they approach widowhood. At an estimated increase of 0.04 standard deviations per year approaching widowhood, 80 % of women in my sample would catch up with their husbands prior to the expected onset of widowhood. I also demonstrate that these findings are due to actual increases by women and are not merely an artifact of cognitive decline among older men. These results are consistent with a model in which the household division of labor breaks down when a spouse dies. The model shows that women have an incentive both to delay acquiring financial knowledge and also to begin learning before widowhood. This paper represents the first empirical examination of the financial literacy of both membersofcouplesandprovidesalife-cycleinterpretationofthegendergapinfinancial literacy. This paper employs data that is generously supported by NIA grant P01 AG026571. Many thanks to