EMF21-03: Effects of Income Payment Timing on Financial Shortfalls for Retirees and People with Disabilities

Abstract

A key question that this study aims to explore is whether Social Security income payment timing affects financial shortfalls. We would expect that pay cycle would not affect likelihood of financial shortfall. However, this study finds that as beneficiaries progress through the pay cycle, they are more likely to experience a financial shortfall. Social Security beneficiaries’ probability of experiencing a financial shortfall, that is when they do not have enough liquidity to cover expenditures, increases over the pay cycle. The effect of income payment timing on financial shortfalls is driven by a general increase in consumption over the pay cycle and decline in liquidity. Beneficiaries appear to have difficulty managing their cash flow particularly at the end of the pay cycle where declines in liquidity and increases in consumption are relatively large.