Wharton Pension Research Council Working Papers
 

Author(s)

Douglas A. Wolf

Document Type

Working Paper

Date of this Version

7-10-2020

Abstract

Longevity risk, which is typically portrayed as the problem of people outliving their assets, can be viewed as both an aggregate and an individual-level issue. A related issue is that of ‘active life,’ an individual-level phenomenon, or ‘active life expectancy’ (ALE), an aggregate phenomenon. During their lifetimes, members of a covered population may alternate between ‘active’ and ‘disabled’ status; the average amount of time spent in the ‘active’ state is, for the cohort, its ‘active life expectancy.’ ALE does not appear to have consequences for aggregate longevity risk, but it may have major implications at the individual level. A transition from active to disabled status may signal a shorter-than-expected remaining lifetime, with implications for the speed at which one should draw down one’s assets. Moreover, those with severe care needs but lacking access to family-provided care and long-term care insurance may find that they need to draw down their assets in order to achieve eligibility for Medicaid-funded care services. Indeed, Medicaid and family-provided elder care can be viewed as a particular form of ‘public-private partnership’ for sharing the risks of late-life care needs.

Keywords

Active life expectancy, annuities, long-term care, longevity risk, spenddown

Working Paper Number

WP2020-12

Copyright/Permission Statement

All findings, interpretations, and conclusions of this paper represent the views of the author and not those of the Wharton School or the Pension Research Council. © 2020 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.

Acknowledgements

Julia Carboni and Benny Goodman made helpful contributions to this paper.

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Date Posted: 10 July 2020