This paper examines the interaction between precautionary saving and social insurance programs, particularly those with means-tested eligibility based on assets. The authors argue that a life-cycle model can explain observed patterns in household wealth accumulation when precautionary saving and asset-based social insurance are explicitly considered. They demonstrate theoretically that such social insurance programs discourage saving by households with low expected lifetime income. Using a dynamic programming model with four state variables, they evaluate the model and find that low-income households are more likely to hold little wealth compared to high-income households. This low wealth accumulation is explained as a utility-maximizing response to asset-based means-tested welfare programs. The paper also discusses the empirical evidence from the Panel Study of Income Dynamics (PSID) on the distribution of household wealth by age and education, and presents simplified models to illustrate the effects of social insurance and asset-based means testing on consumption and saving behavior.This paper examines the interaction between precautionary saving and social insurance programs, particularly those with means-tested eligibility based on assets. The authors argue that a life-cycle model can explain observed patterns in household wealth accumulation when precautionary saving and asset-based social insurance are explicitly considered. They demonstrate theoretically that such social insurance programs discourage saving by households with low expected lifetime income. Using a dynamic programming model with four state variables, they evaluate the model and find that low-income households are more likely to hold little wealth compared to high-income households. This low wealth accumulation is explained as a utility-maximizing response to asset-based means-tested welfare programs. The paper also discusses the empirical evidence from the Panel Study of Income Dynamics (PSID) on the distribution of household wealth by age and education, and presents simplified models to illustrate the effects of social insurance and asset-based means testing on consumption and saving behavior.