Medical Spending, Bequests, and Asset Dynamics around the Time of Death

lmost 40 percent of U.S. wealth belongs to households whose head is sixty-ve or older. 1 These older households tend to run down their wealth more slowly than the rate of decrease implied by a basic life-cycle model in which the time of death is known. An active research literature has risen around this "retirement-savings puzzle" One potential solution to this puzzle is that older households are holding their assets because they fear incurring high medical expenses at the ends of their lives. Another potential explanation is that the elderly are accumulating assets to bequeath to their heirs. 2 Determining which of these motives is more powerful has proven challenging, in large part because the two motives generate similar saving behavior