Academics working with the Michigan Retirement Research Center have carefully developed a new retiree spending model showing singles tend to have higher medical spending in retirement vs. their married counterparts.
For that reason, the researchers suggest, a single should expect to have higher medical spending than a member of a couple.
As stated in the paper and an accompanying explanatory brief, the researchers worked to “model the saving problem of retired couples and singles facing uncertain longevity and medical expenses in [the] presence of means-tested social insurance.” The team’s goal was to identify a data-based methodology for evaluating the complex interplay of the various saving motivations and investment opportunities for couples and singles in this situation.
Explaining the key features of their model, the researchers note that a couple’s assets tend to drop sharply with the death of a spouse. “By the time the second spouse dies, a large fraction of the wealth of the original couple has vanished, with the wealth drops at the time of death of each spouse explaining most of the decline,” the paper says.
The researchers therefore observe that a large share of the decline in assets of a given retired couple over time is due to the high medical expenses most people face preceding death. “This suggests that a large fraction of all assets held in retirement are used to insure oneself against the risk of high medical and death expenses,” the paper says.
This does not exactly line up with the conventional wisdom that singles and couples slowly spend down assets in a smooth fashion over time, for example to cover basic living expenses.
The trio of researchers go on to show that medical expenses and government-provided insurance are important for revealing the saving patterns of single U.S. retirees at all income levels, including high-permanent-income individuals who keep large amounts of assets until very late in life.
De Nardi is a professor at University College London, a faculty research fellow at the National Bureau of Economic Research, and a research fellow at the Institute for Fiscal Studies. Eric French is a professor at University College London and a senior economist and research adviser at the Federal Reserve Bank of Chicago. John Bailey Jones is an associate professor in the Department of Economics at the State University of New York (SUNY) at Albany.