What Is the Insurance Value of Social Security by Race and Socioeconomic Status?

Karolos Arapakis, Gal Wettstein and Yimeng Yin

Working Papers, Center for Retirement Research at Boston College from Center for Retirement Research

Abstract: Social Security’s design is known to help Black individuals and those with lower socioeconomic status due to the progressive benefit formula, but this effect is partially offset by the shorter life expectancies of these groups. However, valuing Old-Age and Survivors Insurance (OASI) solely on expected benefits neglects the program’s longevity insurance value, which favors individuals facing greater uncertainty over their lifespans. This paper uses a structural model to measure the value of the program’s longevity insurance for stylized households that differ by race, education, and marital status. Wealth equivalence calculations indicate that all stylized households value OASI at least as much as their lifetime OASI tax contributions. The results also indicate that Black households derive more longevity insurance value from OASI than their White counterparts. Hence, OASI increases racial equity in retirement even more than suggested by measures based on expected benefits alone.

Pages: 25 pages
Date: 2023-09
New Economics Papers: this item is included in nep-age and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:crr:crrwps:wp2023-14

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