Socioeconomic Status, Differential Access to Public and Private Safety Nets, and the Effects of Health/Disability Shocks near Retirement Age on Financial Well-Being

Irena Dushi, U.S. Social Security Administration (SSA)
Kalman Rupp, U.S. Social Security Administration (SSA)

We analyze how the effects of health and disability (HD) shocks on financial well-being of the population near retirement-age differ across various indicators of socioeconomic status (SES). Mean effects may be misleading due to differential access to public and private safety nets which serve as buffers against adverse effects of HD shocks and due to other sources of heterogeneity. Means-tested public programs, primarily SSI and Medicaid, play the buffer role in case of a disability shock for the majority of the working-age population at the lower end of the SES distribution. In contrast, access to employer-based health insurance, pensions, and wealth provide a buffer for those at the higher tail. It is those in the middle of the SES distribution who are expected to be more affected by such shocks due to limited access to either public or private buffers. Seven waves of HRS and SSA restricted data are used.