Saturday, January 14, 2012

Why Don't The Elderly Spend More?

Older Americans are slow to spend down their accumulated assets, and the more assets they have the more slowly they spend them. What accounts for this behavior? According to a study by the Federal Reserve Bank of Chicago, their spending and saving behavior is determined by how long they expect to live (How Do the Risks of Living Long and Facing High Medical Expenses affect the Elderly's Saving Behavior?).

The richer older people are, the longer they expect to live--and the longer they actually live. Consequently, the elderly--especially the affluent elderly--have an incentive to save to pay for the rising medical costs associated with a longer life. A 70-year-old poor man expects to live only 6 more years, according to the research. A 70-year-old rich woman expects to live 17 more years. These differences in expected length of life lead to differences in spending and saving behavior, with the more affluent elderly the slowest to disperse their assets.

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