Social Security Wealth, Inequality, and Lifecycle Saving
John Sabelhaus and
Alice Henriques Volz
No 27110, NBER Working Papers from National Bureau of Economic Research, Inc
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.
JEL-codes: D15 G11 J26 (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-age, nep-lma and nep-pbe
Note: AG LS PE
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Citations: View citations in EconPapers (7)
Published as Social Security Wealth, Inequality, and Life-Cycle Saving , John Sabelhaus, Alice Henriques Volz. in Measuring Distribution and Mobility of Income and Wealth , Chetty, Friedman, Gornick, Johnson, and Kennickell. 2022
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