NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Supplemental Security Income Rules Reduces Saving



"...relatively high SSI benefits reduce saving among households headed by individuals approaching the age of SSI eligibility."

Many low-income elderly plan ahead in order to qualify for a means-tested federal retirement program called Supplemental Security Income (SSI). According to NBER Research Associate David Neumark and co-author Elizabeth Powers, these older people spend enough extra money in the few years before retirement at 65 to qualify for strict asset and income tests. In other words, they reduce their savings and wealth.

Although federal benefits are uniform across states, states may supplement federal SSI benefits. In 1985, for example, the maximum federal benefit was $325 a month for an individual and $488 for a couple. The highest state benefit was in California, and it resulted in a maximum combined benefit of $504 for an individual and $916 for a couple.

In The Effect of Means-Tested Income Support for the Elderly on Pre-Retirement Saving: Evidence from the SSI Program in the U.S. (NBER Working Paper No. 6303) , the authors use the variation in state supplemental SSI benefits to estimate the effects of SSI on saving. They find that relatively high SSI benefits reduce saving among households headed by individuals approaching the age of SSI eligibility, and likely to end up participating in the program. This proves to be the case for both men and women. In states where the benefits are $100 higher, for example, savings fall on average by $163. Various other tests of the data confirm that aged, likely participants in the SSI program shrink their savings and other assets to assure their eligibility upon retirement.

Neumark and Powers find that the median wealth of likely participants in the present SSI program, aged 60 to 64, is equal to or very near zero. This implies that many of these likely participants have little reason to dissave to qualify for SSI. But a sizable fraction of this group have some wealth that could be run down to satisfy asset tests. The nature of the SSI program encourages this. The federal component of the program specifies maximum benefit levels for couples and individuals that are reduced by income from other sources, including Social Security benefits and Disability Insurance. Financial resources also affect eligibility. For example, as of 1985, individuals with more than $1,600 in countable assets, and couples with more than $2,400 in countable assets, were ineligible for SSI. (Countable assets typically exclude a house and car.)


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