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Key Findings Details

The Effect of the Risk of Out-of-Pocket Spending for Health Care on Economic Preparation for Retirement
Michael Hurd and Susann Rohwedder
WP 2010-232

In prior work, we developed a framework to analyze economic preparation for retirement, taking into account the risk of living to an advanced old age and the concomitant risk of running out of resources. We augment our previous model to account for the risk of out-of-pocket spending for health care and find:

  • The risk of out-of-pocket health care spending reduces economic preparation for retirement from about 72% of persons aged 65-69 to about 63%.
  • However, the effects of taking into account health-related out-of-pocket expenditure risk differ sharply across the population.
  • For example, among singles it reduces the fraction with adequate economic retirement resources disproportionately (from 57% to 44%).  Among single women who did not graduate from high school, the percentage adequately prepared declines from 33% to 15%.
  • The results suggest a role for better insurance: with perfect insurance, out-of-pocket spending would be at the mean level of our baseline simulations, resulting in an increase of about nine percentage points of persons adequately economically prepared for retirement.

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