IDEAS home Printed from https://ideas.repec.org/a/nse/ecosta/ecostat_2019_507-508_1.html
   My bibliography  Save this article

Private Financing of Long‑Term Care: Income, Savings and Reverse Mortgages

Author

Listed:
  • Carole Bonnet
  • Sandrine Juin
  • Anne Laferrère

Abstract

[eng] To what extent would older Europeans be able to pay for their long‑term care needs out of their income and assets if they had no access to informal care or public insurance? To answer this question, we build a microsimulation model and estimate the disability trajectories of those currently aged 65 or older in nine European countries using the Survey of Health, Ageing and Retirement in Europe (SHARE). We focus on the potential role of reverse mortgages in home equity release. According to the simulations, 57% of people 65 and over will experience disability. Conditional on need, care will be required for 4.4 years on average. Of those with no partner, 6% of dependent individuals could pay for their long‑term care out of their income alone, 22% if they used all their savings except their home. The proportion would reach 49% if they took out reverse mortgages on their main residence. However, one quarter would be able to finance less than 10% of their long‑term care expenses.

Suggested Citation

  • Carole Bonnet & Sandrine Juin & Anne Laferrère, 2019. "Private Financing of Long‑Term Care: Income, Savings and Reverse Mortgages," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 507-508, pages 5-24.
    • Handle: RePEc:nse:ecosta:ecostat_2019_507-508_1
    DOI: https://doi.org/10.24187/ecostat.2019.507d.1972
    as

    Download full text from publisher

    File URL: https://insee.fr/en/statistiques/fichier/4173202/507-508_Bonnet-Juin-Laferrere-EN.pdf
    Download Restriction: no
    File URL: https://libkey.io/https://doi.org/10.24187/ecostat.2019.507d.1972?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Benítez-Silva, Hugo & Eren, Selçuk & Heiland, Frank & Jiménez-Martín, Sergi, 2015. "How well do individuals predict the selling prices of their homes?," Journal of Housing Economics, Elsevier, vol. 29(C), pages 12-25.
    2. Wu, Stephen, 2001. "Adapting to heart conditions: a test of the hedonic treadmill," Journal of Health Economics, Elsevier, vol. 20(4), pages 495-507, July.
    3. Roméo Fontaine & Manuel Plisson & Nina Zerrar, 2014. "Dans quelle mesure les préférences individuelles contraignent‑elles le développement du marché de l’assurance dépendance ?," Économie et Statistique, Programme National Persée, vol. 474(1), pages 35-68.
    4. Venti, Steven F. & Wise, David A., 1991. "Aging and the income value of housing wealth," Journal of Public Economics, Elsevier, vol. 44(3), pages 371-397, April.
    5. Les Mayhew & Martin Karlsson & Ben Rickayzen, 2010. "The Role of Private Finance in Paying for Long Term Care," Economic Journal, Royal Economic Society, vol. 120(548), pages 478-504, November.
    6. Carin van der Cruijsen & David-Jan Jansen & Maarten van Rooij, 2014. "The rose-colored glasses of homeowners," DNB Working Papers 421, Netherlands Central Bank, Research Department.
    7. Arjen Hussem & Casper Ewijk & Harry Rele & Albert Wong, 2016. "The Ability to Pay for Long-Term Care in the Netherlands: A Life-cycle Perspective," De Economist, Springer, vol. 164(2), pages 209-234, June.
    8. Steven F. Venti & David A. Wise, 2004. "Aging and Housing Equity: Another Look," NBER Chapters, in: Perspectives on the Economics of Aging, pages 127-180, National Bureau of Economic Research, Inc.
    9. Jan Rouwendal & Fleur Thomese, 2013. "Homeownership and Long-Term Care," Housing Studies, Taylor & Francis Journals, vol. 28(5), pages 746-763, July.
    10. Hui Shan, 2011. "Reversing the Trend: The Recent Expansion of the Reverse Mortgage Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 39(4), pages 743-768, December.
    11. Oswald, Andrew J. & Powdthavee, Nattavudh, 2008. "Does happiness adapt? A longitudinal study of disability with implications for economists and judges," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1061-1077, June.
    12. Rachel Ong, 2008. "Unlocking Housing Equity Through Reverse Mortgages: The Case of Elderly Homeowners in Australia," European Journal of Housing Policy, Taylor and Francis Journals, vol. 8(1), pages 61-79.
    13. Bernheim, B Douglas & Shleifer, Andrei & Summers, Lawrence H, 1986. "The Strategic Bequest Motive," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages 151-182, July.
    14. Forder, Julien & Fernández, José-Luis, 2009. "Analysing the costs and benefits of social care funding arrangements in England: technical report," LSE Research Online Documents on Economics 24977, London School of Economics and Political Science, LSE Library.
    15. Norma B. Coe & Courtney Harold Van Houtven, 2009. "Caring for mom and neglecting yourself? The health effects of caring for an elderly parent," Health Economics, John Wiley & Sons, Ltd., vol. 18(9), pages 991-1010, September.
    16. Rachel Ong, 2008. "Unlocking Housing Equity Through Reverse Mortgages: The Case of Elderly Homeowners in Australia," European Journal of Housing Policy, Taylor and Francis Journals, vol. 8(1), pages 61-79.
    17. Todd Sinai & Nicholas S. Souleles, 2007. "Net Worth and Housing Equity in Retirement," NBER Working Papers 13693, National Bureau of Economic Research, Inc.
    18. Albrecht, Gary L. & Devlieger, Patrick J., 1999. "The disability paradox: high quality of life against all odds," Social Science & Medicine, Elsevier, vol. 48(8), pages 977-988, April.
    19. Rickayzen, B.D. & Walsh, D.E.P., 2002. "A Multi-State Model of Disability for the United Kingdom: Implications for Future Need for Long-Term Care for the Elderly," British Actuarial Journal, Cambridge University Press, vol. 8(2), pages 341-393, June.
    20. Rik Dillingh & Henriette Prast & Mariacristina Rossi & Cesira Urzì Brancati, 2013. "The psychology and economics of reverse mortgage attitudes: evidence from the Netherlands," CeRP Working Papers 135, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    21. Fornero, Elsa & Rossi, Mariacristina & Urzí Brancati, Maria Cesira, 2016. "Explaining why, right or wrong, (Italian) households do not like reverse mortgages," Journal of Pension Economics and Finance, Cambridge University Press, vol. 15(2), pages 180-202, April.
    22. Leora Friedberg & Wenliang Hao & Wei Sun & Anthony Webb & Zhenyu Li, 2014. "New Evidence on the Risk of Requiring Long-Term Care," Working Papers, Center for Retirement Research at Boston College wp2014-12, Center for Retirement Research.
    23. Arjen Hussem & Casper Ewijk & Harry Rele & Albert Wong, 2016. "The Ability to Pay for Long-Term Care in the Netherlands: A Life-cycle Perspective," De Economist, Springer, vol. 164(2), pages 209-234, June.
    24. Ludovico Carrino & Cristina Elisa Orso, 2014. "Eligibility and inclusiveness of Long-Term Care Institutional frameworks in Europe: a cross-country comparison," Working Papers 2014:28, Department of Economics, University of Venice "Ca' Foscari".
    25. Mackenbach, Johan P., 2012. "The persistence of health inequalities in modern welfare states: The explanation of a paradox," Social Science & Medicine, Elsevier, vol. 75(4), pages 761-769.
    26. Tim Muir, 2017. "Measuring social protection for long-term care," OECD Health Working Papers 93, OECD Publishing.
    27. Roméo Fontaine & Nina Zerrar, 2013. "Comment expliquer la faible disposition des individus à se couvrir face au risque dépendance," Post-Print halshs-01232230, HAL.
    28. Barbara Stucki, 2006. "Using Reverse Mortgages to Manage the Financial Risk of Long-Term Care," North American Actuarial Journal, Taylor & Francis Journals, vol. 10(4), pages 90-102.
    29. Vincenzo Atella & Federico Belotti & Ludovico Carrino & Andrea Piano Mortari, 2017. "The future of Long Term Care in Europe. An investigation using a dynamic microsimulation model," CEIS Research Paper 405, Tor Vergata University, CEIS, revised 08 May 2017.
    30. Joan Costa-Font & Christophe Courbage (ed.), 2012. "Financing Long-Term Care in Europe," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-34919-3, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. François Legendre, 2019. "The Emergence and Consolidation of Microsimulation Methods in France," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 510-511-5, pages 201-217.
    2. Koon Shing Kwong & Jing Rong Goh & Ting Lin Collin Chua, 2024. "Enhancing Sell-Type Home Reversion Products for Retirement Financing," Risks, MDPI, vol. 12(2), pages 1-13, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sandrine Juin, 2016. "Care for dependent elderly people : dealing with health and financing issues," Erudite Ph.D Dissertations, Erudite, number ph16-02 edited by Thomas Barnay.
    2. Dillingh, Rik & Prast, Henriette & Rossi, Mariacristina & Urzì Brancati, Cesira, 2017. "Who wants to have their home and eat it too? Interest in reverse mortgages in the Netherlands," Journal of Housing Economics, Elsevier, vol. 38(C), pages 25-37.
    3. Mohammed Mohammed Ishaq & Sulaiman Noralfishah, 2018. "Determinants of Reverse Mortgage Usage in Malaysia," Real Estate Management and Valuation, Sciendo, vol. 26(3), pages 5-23, September.
    4. Dillingh, Rik, 2016. "Empirical essays on behavioral economics and lifecycle decisions," Other publications TiSEM 0e2143e3-bd86-4302-90eb-e, Tilburg University, School of Economics and Management.
    5. Hui Shan, 2011. "Reversing the Trend: The Recent Expansion of the Reverse Mortgage Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 39(4), pages 743-768, December.
    6. Davidoff, Thomas & Gerhard, Patrick & Post, Thomas, 2017. "Reverse mortgages: What homeowners (don’t) know and how it matters," Journal of Economic Behavior & Organization, Elsevier, vol. 133(C), pages 151-171.
    7. Daniel Barczyk & Sean Fahle & Matthias Kredler, 2023. "Save, Spend, or Give? A Model of Housing, Family Insurance, and Savings in Old Age," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(5), pages 2116-2187.
    8. Schünemann, Johannes & Strulik, Holger & Trimborn, Timo, 2017. "Going from bad to worse: Adaptation to poor health health spending, longevity, and the value of life," Journal of Economic Behavior & Organization, Elsevier, vol. 140(C), pages 130-146.
    9. Macé, Serge & Le Lec, Fabrice, 2011. "On fatalistic long-term health behavior," Journal of Economic Psychology, Elsevier, vol. 32(3), pages 434-439, June.
    10. Fang, H., 2016. "Insurance Markets for the Elderly," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 237-309, Elsevier.
    11. Stephanie Moulton & Donald Haurin & Samuel Dodini & Maximilian D. Schmeiser, 2016. "How Home Equity Extraction and Reverse Mortgages Affect the Credit Outcomes of Senior Households," Working Papers wp351, University of Michigan, Michigan Retirement Research Center.
    12. Yang, Jaehwan & Yuh, Yoonkyung, 2019. "Reverse Mortgages for Managing Longevity Risk in Korea," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 60(1), pages 21-40, June.
    13. Ruth Hancock & Marcello Morciano & Stephen Pudney & Francesca Zantomio, 2015. "Do household surveys give a coherent view of disability benefit targeting?: a multisurvey latent variable analysis for the older population in Great Britain," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 178(4), pages 815-836, October.
    14. Costa-Font, Joan & Vilaplana-Prieto, Cristina, 2022. "Health shocks and housing downsizing: How persistent is ‘ageing in place’?," Journal of Economic Behavior & Organization, Elsevier, vol. 204(C), pages 490-508.
    15. Gardner, Jonathan & Oswald, Andrew J., 2007. "Money and mental wellbeing: A longitudinal study of medium-sized lottery wins," Journal of Health Economics, Elsevier, vol. 26(1), pages 49-60, January.
    16. Lepinteur, Anthony & Waltl, Sofie R., 2020. "Tracking Owners' Sentiments: Subjective Home Values, Expectations and House Price Dynamics," Department of Economics Working Paper Series 299, WU Vienna University of Economics and Business.
    17. Muñoz, Sònia, 2004. "Real effects of regional house prices: dynamic panel estimation with heterogeneity," LSE Research Online Documents on Economics 24704, London School of Economics and Political Science, LSE Library.
    18. Swarn Chatterjee, 2016. "Reverse Mortgage Participation in the United States: Evidence from a National Study," IJFS, MDPI, vol. 4(1), pages 1-10, March.
    19. Donoso, José & Ruiz, José Luis & Tapia, Pablo, 2019. "The social and economic effects of introducing reverse mortgages in Chile," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    20. François Ortalo-Magné & Sven Rady, 2006. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints ," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(2), pages 459-485.

    More about this item

    JEL classification:

    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nse:ecosta:ecostat_2019_507-508_1. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Veronique Egloff (email available below). General contact details of provider: https://edirc.repec.org/data/inseefr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.