Working Paper: NBER ID: w27110
Authors: John Sabelhaus; Alice Henriques Volz
Abstract: Wealth inequality in the US is high and rising, but Social Security is generally not considered in those wealth measures. Social Security Wealth (SSW) is the present value of future benefits that an individual will receive less the present value of future taxes they will pay. When an individual enters the labor force, they generally face a lifetime of taxes to pay before they will receive any benefits, and thus their initial SSW is generally low or negative. As an individual works and pays into the system their SSW grows and generally peaks somewhere around typical Social Security benefit claim ages. The accrual of SSW over the working life is most important for lower-income workers because the progressive Social Security benefit formula means that taxes paid while working are associated with proportionally higher benefits in retirement. We estimate SSW for individuals in the Survey of Consumer Finances (SCF) for 1995 through 2016 and use a pseudo-panel approach to empirically demonstrate those lifecycle patterns. We also show that including SSW in a comprehensive wealth measure generally reduces estimated levels of wealth inequality but does not reverse the upward trend in top wealth shares.
Keywords: Social Security; Wealth Inequality; Lifecycle Saving
JEL Codes: D15; G11; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Inclusion of SSW (Y20) | Reduced estimated levels of wealth inequality (D31) |
| Inclusion of SSW (Y20) | Upward trend in top wealth shares remains (D33) |
| SSW (C87) | Higher SSW for low-wealth families (I24) |
| SSW serves as a form of saving (H55) | Different saving behaviors across wealth groups (D14) |
| Inclusion of SSW (Y20) | Impact on wealth inequality levels (D31) |
| SSW (C87) | Distribution of wealth among top earners (D31) |