@article {Blanchett55, author = {David Blanchett}, title = {Health Shocks and Subsequent Retiree Spending}, volume = {6}, number = {1}, pages = {55--69}, year = {2018}, doi = {10.3905/jor.2018.6.1.055}, publisher = {Institutional Investor Journals Umbrella}, abstract = {Healthcare expenses are receiving increasing attention from retirees (and the media) today and many financial planners are starting to think about how to potentially incorporate these expenses into a financial plan. This article explores some of the key considerations associated with modeling healthcare-related expenses for retirees with a focus on the impact of these expenses on future retiree spending (and consumption) using data from the Health and Retirement Study. We find that households that experience unexpected out-of-pocket healthcare expenses tend to decrease spending by more than those who do not. For example, if healthcare expenses in a given year exceed 10\% of total spending (excluding health insurance premiums, which we define as a health shock), then future total spending, nondurable spending, and consumption drop by approximately 5\% more than households that do not experience the shock. Financial advisors (and households) interested in including healthcare expenses as part of a financial plan should be aware of this effect since it can potentially reduce the actual financial implications associated with a retiree health shock (or other retiree healthcare expenditures).TOPICS: Retirement, simulations}, issn = {2326-6899}, URL = {https://jor.pm-research.com/content/6/1/55}, eprint = {https://jor.pm-research.com/content/6/1/55.full.pdf}, journal = {The Journal of Retirement} }