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Medical Expenses and Saving in Retirement: The Case of the United States and Sweden

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  • Makoto Nakajima
  • Irina A. Telyukova

Abstract

Many US households have significant wealth late in life, contrary to the predictions of a simple life-cycle model. By comparison, retirees in Sweden decumulate wealth more quickly while facing smaller out-of-pocket medical expense risks late in life. In this paper, we investigate how well the latter can account for the former using a full life-cycle consumption-saving model. We find that medical expense level and risk account for 32–59 percent of the US-Sweden difference in retirees' speed of wealth decumulation depending on age. We also show that financing and coverage of health insurance affect wealth decumulation patterns in retirement.

Suggested Citation

  • Makoto Nakajima & Irina A. Telyukova, 2025. "Medical Expenses and Saving in Retirement: The Case of the United States and Sweden," American Economic Journal: Macroeconomics, American Economic Association, vol. 17(1), pages 161-202, January.
    • Handle: RePEc:aea:aejmac:v:17:y:2025:i:1:p:161-202
    DOI: 10.1257/mac.20220211
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    More about this item

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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