UNCERTAIN HEALTH AND SURVIVAL - EFFECTS ON END-OF-LIFE CONSUMPTION

This article analyzes the impact of health and survival uncertainty on the saving and consumption decisions of retirees. A dynamic programmi ng approach is used to model the household's planning problem. The uti lity parameters are estimated using panel data. We find that a fall in to poor health raises the marginal utility from consumption. Simulatio ns are used to indicate the effects of falling into poor health and lo ss of spouse. They reveal a large transfer from the healthy to the sic k partner and a strong dependence of saving on the survivor benefits, suggesting that concern about the surviving spouse is an important mot ive for saving.