Health Status, Health Shocks, and Asset Adequacy Over Retirement Years.
This article uses data on a sample of retirees drawn from the Health and Retirement Study (HRS) to examine changes in health over the retirement years and to estimate the effects of health changes in retirement on wealth. Using the framework of item response theory, we develop a novel measure of health that makes use of multiple indicators of physical health that are available in the HRS. We find that large negative shocks to the health of male retirees and their spouses are frequent in retirement and that when such shocks do occur, recovery to the preshock level of health is rare. Using a dynamic panel data model, we then estimate short- and long-run effects of changes in health on wealth. While our estimated short-run effects are modest, long-run estimates of the impact of health shocks on wealth are large, ranging from a 12% to 20% reduction in wealth by the 10th year, following a permanent one standard deviation decrease in health.
1 Department of Economics, La Follette School of Public Affairs, Institute for Research on Poverty, University of Wisconsin, Madison, WI, USA.
Geoffrey L
GL
Wallace
1 Department of Economics, La Follette School of Public Affairs, Institute for Research on Poverty, University of Wisconsin, Madison, WI, USA.
Robert
R
Haveman
1 Department of Economics, La Follette School of Public Affairs, Institute for Research on Poverty, University of Wisconsin, Madison, WI, USA.|2 Department of Population Health Sciences, La Follette School of Public Affairs, Institute for Research on Poverty, University of Wisconsin, Madison, WI, USA.
Barbara
B
Wolfe
D005260:Female; D006304:Health Status; D006801:Humans; D007182:Income; D008016:Life Change Events; D008297:Male; D008875:Middle Aged; D012179:Retirement / Q000191:economics*; D012959:Socioeconomic Factors
health measurement; health shocks; item response theory; wealth effects