Social Security Wealth, Inequality, and Lifecycle Saving

45 Pages Posted: 12 May 2020 Last revised: 28 Jan 2023

See all articles by John Sabelhaus

John Sabelhaus

Brookings Institution

Alice H. Volz

Government of the United States of America - Division of Research and Statistics

Date Written: May 2020

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.

Suggested Citation

Sabelhaus, John and Volz, Alice H., Social Security Wealth, Inequality, and Lifecycle Saving (May 2020). NBER Working Paper No. w27110, Available at SSRN: https://ssrn.com/abstract=3597842

John Sabelhaus (Contact Author)

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

Alice H. Volz

Government of the United States of America - Division of Research and Statistics

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