Microdata studies of household saving often find a significant group in the population with virtually no wealth, raising concerns about heterogeneity in motives for saving. In particular, this heterogeneity has been interpreted as evidence against the life-cycle model of saving. This paper argues that a life-cycle model can replicate observed patterns in household wealth accumulation after accounting explicitly for precautionary saving and asset-based means- tested social insurance. We demonstrate theoretically that social insurance programs with means tests based on assets discourage saving by households with low expected lifetime income. In addition, we evaluate the model using a dynamic programming model with four state variables. Assuming common preference parameters across lifetime- income groups, we are able to replicate the empirical pattern that low-income households are more likely than high-income households to hold virtually no wealth. Low wealth accumulation can be explained as a utility-maximizing response to asset-based means-tested welfare programs

Microdata studies of household saving often find a significant group in the population with virtually no wealth, raising concerns about heterogeneity in motives for saving. In particular, this heterogeneity has been interpreted as evidence against the life-cycle model of saving. This paper argues that a life-cycle model can replicate observed patterns in household wealth accumulation after accounting explicitly for precautionary saving and asset-based means-tested social insurance. We demonstrate theoretically that social insurance programs with means tests based on assets discourage saving by households with low expected lifetime income. In addition, we evaluate the model using a dynamic programming model with four state variables. Assuming common preference parameters across lifetime-income groups, we are able to replicate the empirical pattern that low-income households are more likely than high-income households to hold virtually no wealth. Low wealth accumulation can be explained as a utility- maximizing response to asset-based means-tested welfare programs.

Our estimates indicate that 24% of net wealth is attributed to precautionary savings in Australia. Moreover, across the income distribution, we find that low-income households have the highest fraction of their wealth accumulation explained by precautionary motives. These results for Australia are at odds with the estimates of precautionary wealth in the United States where related studies find that low-income households hold low levels of precautionary savings. Using a simple theoretical model, we show that differences in means-tested social insurance programs can rationalize these large differences in our empirical results.

This paper focuses on precautionary saving against uncertain longevity and on the annuity insurance aspects of social security within the life-cycle framework. The principal findings are three. First, the evolution of social security is reviewed in response to missing markets for providing insurance for consumption in the face of lifetime uncertainty. A simple life-cycle model is used to show that even an actuarially fair, fully funded social security system can reducenational saving. Second, to the extent that the introduction of social security reduces the size of accidental bequests, the net effect on the consumption of subsequent generations is diminished. Finally,consideration of the welfare gains from compulsory social security requires an examination of the tradeoff between the benefits to early participants from access to the annuities and the costs to generations that follow of a lower capital stock. Across a range of parameter values, the partial equilibrium impact of social security on consumptionis reversed. The introduction of an explicit bequest motive ivitigates both the initial impact of social security on saving and the long-run welfare loss from the introduction of social security.

In this article we test whether the introduction of social insurance has led to a reduction in private insurance purchases and precautionary saving by examining the introduction of workers' compensation. Our empirical analysis is based on the financial decisions of over 7,000 households surveyed for the 1917 19 Bureau of Labor Statistics Cost-of- Living that the presence of workers' compensation at least partially crowded out private accident insurance and led to a substantial reduction in precautionary saving. The introduction of workers' compensation caused private saving to fall by approximately 25 percent, with other factors held constant.

Monograph on the impact of the social security and old age benefit programme on personal saving for retirement in the USA - includes the research methodology. Bibliography pp. 133 to 136, references and statistical tables.