Wealth, prevention, and longevity: Integrating health into portfolio decisions

Overview

This paper develops an integrated framework that jointly models preventive health expenditures within a lifetime portfolio selection problem where mortality is endogenous and stochastic. The framework extends classical financial portfolio optimization by treating age at death as a random variable influenced by health investments. Individuals optimize allocation decisions across consumption, financial assets, and preventive health spending to maximize lifetime utility, recognizing that health investments reduce mortality risk and extend life expectancy. The model synthesizes financial theory with actuarial mortality science to examine how health and wealth decisions interact across the life cycle.

Methods and approach

The study employs a dynamic portfolio optimization framework augmented with actuarial mortality modeling. The core methodology treats mortality risk as endogenously determined by preventive health expenditures, wherein health spending reduces force of mortality and increases survival probabilities. The model incorporates individual heterogeneity through gender, age, and country-specific mortality profiles obtained from actuarial life tables. Numerical simulations generate optimal control paths for consumption, financial investment, and health prevention expenditures across different demographic and geographic cohorts.

Key Findings

Optimal prevention strategies exhibit systematic variation across demographic dimensions. The analysis demonstrates that gender, age cohort, and country-specific mortality structures significantly influence the composition and timing of health versus financial investments. Numerical results reveal non-trivial trade-offs between immediate consumption, financial asset accumulation, and preventive health expenditures. The simulations illustrate how mortality profile heterogeneity generates distinct optimal lifecycle patterns, with implications for when and how much individuals should allocate resources to risk mitigation through health versus traditional financial instruments.

Implications

For individual financial planning, the framework provides analytical guidance on how personal health investments should be integrated into comprehensive wealth management strategies rather than treated as consumption separate from portfolio decisions. The joint optimization of health and financial choices highlights that myopic approaches to either domain may produce suboptimal lifetime outcomes. For public health policy design, the results underscore how economic incentive structures and financial constraints shape health-related behavior. The analysis provides a formal basis for understanding distributional consequences of health policy across demographic groups with heterogeneous mortality profiles and financial capacity.