Mens Sana in Corpore Sano?

Almost by definition, maintaining high levels of physical and cognitive functioning into old age are key factors for successful ageing. Numerous studies have studied the factors influencing either physical health or cognition. However, the bio-medical literature shows both processes to be closely intertwined. On the one hand, high levels of cognitive functioning allows planning of health-related activities, gauging the consequences of actions, and adhering to medication plans. On the other hand, shocks to physical health have shown to predate declines in cognitive health. We take a broad and systematic approach to model the interdependency of physical health and cognitive functioning over the last third of the lifecycle. To do so, we adapt the model by Cunha, Heckman, and Schennach (2010), originally developed for the development of human capital during childhood and adolescence. In our case, the approach combines factor models for physical health, cognition, and investments into both of these with a nonlinear framework to describe their evolution over time. We use the HRS data from 2002–2016, which gives us individual trajectories of physical and cognitive capacity, and investments over ages 68 to 93 years. Our key results indicate 1) the measurement system and nonlinear dynamics are important modelling components, 2) the rank order of latent factors is remarkably stable, and 3) physical and cognitive capacity can be influenced by investments until very high ages.