April 17, 2018
Timing of Social Security Checks is Key
It’s a simple concept. Deposit retirees’ Social Security checks right before their big-ticket bills come, especially rent.
The U.S. Social Security Administration’s current schedule for depositing pension checks in bank accounts is based on each retiree’s birth date– it can be the second, third, or fourth Wednesday of each month.
The problem is that cash-strapped, low-income seniors receiving the earlier checks, on the second or third Wednesdays, can fall into a common behavioral trap: they spend the money soon after it comes in and then can’t cover the rent, mortgages or credit cards due at the beginning of the following month.
According to a clever new study, people who get these early monthly checks are at greater risk of resorting to desperate measures like payday loans than are seniors receiving them on the fourth Wednesday.
Such measures of financial distress are occurring “even though the pay schedule is known in advance,” write researchers Brian Baugh and Jialan Wang.
The advantage of Social Security deposits made on the fourth Wednesday is that retirees can get the big expenses out of the way first, forcing them to make do for the rest of the month with the money they have left. Indeed, people with fourth-Wednesday deposits had fewer bounced checks, account overdrafts, and payday loans, the researchers found.
They concluded this after first tracking the Social Security deposits flowing into some 34,000 bank accounts and the recurring payments flowing out – groceries, gas, retail, and other charges. It was impractical to track rent payments, typically low-income retirees’ largest expense, because rent usually is paid with a personal check to a landlord, who is unidentifiable in a bank account. As a proxy for rent, the researchers tracked mortgage payments.
A partial explanation for what might be happening is that seniors whose Social Security deposits and bill due dates are mismatched will concentrate their spending early in the month, because the check is burning a hole in their pocket.
And for good reason: low-income people constantly make impossible choices. Do they forgo a trip to the grocery store to pay a medical bill? Can they afford a gift so that a grandson can attend a birthday party, or should he be told he can’t go?
The researchers suggest that new policies and technologies that align income with spending would help retirees.
One such policy might be to move all Social Security deposits to just before the largest bills are due. This wouldn’t give financially vulnerable retirees any more money. But it might give them better odds of budgeting their money well.
The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA or any agency of the federal government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.