Nursing home residents make a difference : the overestimation of saving rates at older ages

Ziegelmeyer, Michael

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URN: urn:nbn:de:bsz:180-madoc-30460
Document Type: Working paper
Year of publication: 2010
The title of a journal, publication series: None
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Veröffentlichungen des MEA (Mannheim Research Institute For the Economics of Aging) > MEA Discussion Papers
Subject: 300 Social sciences, sociology, anthropology
Classification: JEL: D12 D91 E21 ,
Subject headings (SWD): USA , Deutschland , Altersstruktur , Lebenslauf , Altenheimbewohner , Sparquote , Wohlstand
Keywords (English): nursing home population , saving , wealth , saving rate , saving puzzle , life-cycle models , elderly , age structure of the population
Abstract: While life-cycle theory makes the clear prediction that people dissave at old-age, this prediction is not at all borne out by the data from many countries. Various suggestions have been made to explain this discrepancy. This paper sheds more light on the effect of the exclusion of institutionalized individuals in estimating saving rates over old-age, a conceptual aspect often mentioned but never investigated. Particularly this group is expected to decumulate wealth since nursing home expenses net of private (and public) insurance exceed disposable income on average. This paper uses data from the U.S. and Germany to show that there is an increasing overestimation of saving rates from age 75 on if institutionalized households are not included. The effect on aggregate saving rates caused by the exclusion of the nursing home population becomes even more important in the face of population aging. Specifically, this paper quantifies this effect using the Health and Retirement Study (HRS) for the USA. The overestimation of the mean (median) saving rates is 3.3 percentage points (4.3pp) at age 80, 5.4pp (9.4pp) at age 90 and even more for age 90+. Based on the German Income and Expenditure Survey (EVS), the overestimation of the German mean saving rate increases to almost 6pp at age 90. This strong overestimation is based on the fact that nursing home residents strongly reduced their wealth holdings. Referring to the USA, the median single nursing home resident reduces wealth holdings by 90% over a two-year period; the mean single nursing home r esident diminishes total net wealth by 19%. The dissaving is less strong for couples.
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