Retirement Preparedness and Health: An Equivalence Scale Approach

Julian Schmied , Max Planck Institute for Demographic Research

Economic well-being after retirement is of major general interest in the United States. Health shocks are a thread to every saving plan. Yet , while health shock have become more and more prevalent, the private rates of health insurance are low and universal health coverage politically unpopular. In this paper, I investigate the consequences of health shocks on retirement preparedness. Using an equivalence scale framework based on subjective economic well-being (SEW) and longitudinal data from the Health and Retirement Survey (HRS), I find that persons that are healthy at baseline need 65 percent of the pre-retirement working income to maintain SEW. Person that face costs of one or more hospital admission thereafter, but before the retirement, need on average 150 percent. This result demonstrates the economic dimension health shocks can have which ideally makes people save more precautionally, insure themselves against health shocks or vote for universal health care.

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 Presented in Session 38. Ageing and Retirement