How Should Households Value Social Security?
45 Pages Posted: 14 Feb 2015 Last revised: 2 Jul 2019
Date Written: June 30, 2019
I use a life-cycle model to study the value of Social Security from the point of view of working households. I find that the certainty equivalent of Social Security represents only half the sum of future cash flows discounted at the risk-free rate. Unlike the latter, the certainty equivalent is negative for young households and remains as such until their mid thirties. Nationwide, the sum of certainty equivalents is 19.6 trillion dollars, which is 37% lower than the non risk-adjusted value of 31 trillion dollars.
Keywords: Household finance, Social Security, Public liabilities, Portfolio choices
JEL Classification: G11, G18, D91, H55, H06
Suggested Citation: Suggested Citation