Abstract
We study optimal portfolio choice and labor market participation in a continuous time setting in which agents face health shocks, medical expenses, and random lifetimes. We explore the implications of different forms of health coverage and study their impact on dynamic portfolios and labor supply decisions. We characterize these effects in semi-closed form, providing tools to measure retirement incentives as a function of relevant state variables and health cover arrangements. A calibration of the model matches empirically observed labor market participation patterns and portfolio decisions of US workers during the last phase of their working lives, while offering insights into the interlinkage between labor market participation, health insurance provision and portfolio choice.
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