No Pain, No Strain: Impact of Health on the Financial Security of Older Americans

ABSTRACT

This study uses data from the 2002 and 2004 Health and Retirement Study to investigate the impact that new and existing health problems have on the financial strain of older Americans. Two-period models are estimated for a series of financial ratio guidelines that take into account household solvency, liquidity, and investment asset accumulation. We test our models using a subjective measure of self-reported health status and two objective measures of health that control for the severity of specific health conditions. The results show that health problems significantly increase the likelihood of financial strain for older individuals, but the effects vary by the measure of financial strain used and how health status is defined. Specifically, existing health conditions were more likely to affect solvency and investment asset accumulation than liquidity, while new health events were more likely to affect solvency. The severity of the condition did not seem to matter as much as whether the condition was chronic. These results provide insight into the future financial security of older Americans and have important implications for health policy and research.