Social Security Wealth Research Articles

Health Dynamics, Life Expectancy Heterogeneity and the Racial Gap in Social Security Wealth

Health Dynamics, Life Expectancy Heterogeneity and the Racial Gap in Social Security Wealth

Mortality differentials, the racial and ethnic retirement wealth gap, and the COVID-19 Pandemic

Using the Survey of Consumer Finances, I find that the Black/white gap in standard net worth widened from 1989 to 2019 but narrowed between Hispanics and (non-Hispanic) whites. When the definition of wealth is expanded to incorporate Social Security and defined benefit pension wealth (both the discounted sum of future benefits) to create augmented wealth, the wealth gap is sharply reduced, especially for median wealth. The Black/white and Hispanic/white disparity in Social Security wealth lessened considerably over 1989–2019. In contrast, the Black/white ratio of mean augmented wealth showed no change, though the ratio of median augmented wealth progressed. The Hispanic/white ratio of both mean and median augmented wealth advanced as well. The COVID-19 Pandemic struck in 2020 and hit the minority community much harder than whites in terms of mortality rates. Besides claiming over a million lives overall, it lopped off 4.7 percent of Social Security wealth among whites, 11.5 percent among Blacks, and 13.1 percent among Hispanics. As a result, while mean augmented wealth dipped only 1.2 percent among whites, it fell 6.7 percent among Black households and 7.3 percent among Hispanics. The effect was even stronger on median values – declines of a 2.6, 9.3 and 12.1 percent, respectively.

The Life-Cycle Effects of Pension Reforms: A Structural Approach

AbstractTo assess the life-cycle welfare effects of pension reforms, we provide a dynamic stochastic model of saving, portfolio choice, and retirement featuring a rich characterisation of the pension system. Relying on the exogenous variation from a sequence of Italian pension reforms, we identify and estimate the model, which is then used to draw implications of alternative pension policies. The validated model predicts substantial social security wealth effects on retirement, with the offset between public pension wealth and private savings softened when households can adjust their retirement decisions. We further find important distributional effects of pension reforms, with households’ welfare decreasing more the later in the working life they face the reform. Our findings have implications for the design of pension policies and the support they might generate.

Does Social Security Crowd out Private Wealth? A Survey of the Literature

<p><big>In this paper, we review the research on the substitution between social security wealth and private wealth. Our review includes over 100 theoretical and empirical contributions. Nearly 70% of the literature identifies the statistically significant impact of social security wealth on different forms of private savings. A strong majority of authors, who obtain statistically significant results find the negative impact of social security on private savings. We discuss the main limitations of the literature.</big></p>

The impact of social security wealth on the distribution of wealth in the European Union

The ageing of society means that public pension systems are becoming increasingly important. This study evaluates the influence of public pension entitlements on wealth inequality among pensioners. A novel data source - the Eurosystem Household Finance and Consumption Survey – is used to compare the impact of the public pension system on wealth inequality in 19 European countries. Findings indicate that in all investigated countries, social security wealth reduces wealth inequality. Augmented wealth inequality is ca. 30% lower than private wealth inequality. This estimate refers to the population of pensioners, while in the whole population the equalizing impact of public pension systems may be weaker. Social security wealth mitigates not only wealth inequality measured at the country level, but also wealth inequality in the whole European Union.

The old-age pension household replacement rate in Belgium

The objective of the paper is to examine the retirement behaviour of Belgian workers in one-earner households who are automatically granted a more generous old-age pension benefits replacement rate, called the household replacement rate. Following a recommendation of the Belgian Pension Reform Committee, this policy is to be suppressed for new pensioners, except for those receiving the minimum pension. We provide an ex-ante impact evaluation of such reform on both pension sustainability and adequacy measures. Specifically, we test whether the household replacement rate entails a work (dis)incentive mechanism promoting (harming) pension sustainability and furthermore, we analyse the role of the household replacement rate in old-age poverty and inequality measures. To do so, we use the survey dataset SHARE and a discrete time logistic duration model to study the link between retirement and financial retirement incentives created by the social security system. Further, we use a microsimulation model to estimate the magnitude of the assumed impact of the household replacement rate on retirement and we find that this policy generates higher retirement incentives through an income effect. At the same time, we simulate various social security wealth indicators under different household replacement rate scenarios and we find that the household replacement rate could potentially play an important role in decreasing the elderly poverty rate since households with asymmetrical working arrangements are often at the lowest part of the equivalized income distribution. Overall, despite the supposed positive poverty and distributional aspects of this policy, our simulation analysis supports the reform proposal of removing the household replacement rate.

국민연금이 부채부담 수준별 가계의 저축과 자산구성 선택에 미치는 영향

본 논문은 「한국노동패널(KLIPS)」을 사용하여 추정한 가계의 연금자산(Social Security Wealth)을 기초로 하여 연금자산의 크기가 가계의 자산구성에 미치는 영향이 가계의 부채부담 수준별로 어떻게 다른지 살펴보았다. 시스템GMM 모형을 통한 동적 패널분석 결과는 국민연금자산을 많이 보유한 가계는 다른 조건이 동일할 경우 금융자산을 적게 보유하는 것으로 나타나, 국민연금이 가계의 금융자산을 유의하게 구축하는 것을 보인다. 특히, 연금자산의 한계효과는 같은 부채부담 수준에서 저축성 보험을 가장 많이 구축하는 것으로 나타나는데, 이는 연금자산이 장기적 저축의 성격을 가지는 저축성 보험을 가장 크게 구축하는 것으로 보여진다. 이러한 결과는 가계의 재정 상태가 그들의 자산구성 선택과 소비평탄화(consumption smoothing)에 유의미한 영향을 미칠 수 있음을 의미한다. 따라서 가계의 부채 수준은 장기적 소비 행태의 중요한 요소로서 거시적 금융안정을 위한 정책적 고려 대상임을 시사한다.

Child-to-Parent Intergenerational Transfers, Social Security, and Child Wealth Building

I study the relationship among child-to-parent transfers, parents' social security eligibility, and child wealth building. Using data from the Panel Study of Income Dynamics and a regression discontinuity approach, I find that the wealth of adult children increases discontinuously at the parents' Social Security eligibility age for Black, female, and low-income groups. Additionally, the probability that a parent receives monetary transfers decreases discontinuously at the Social Security age for these groups. The effects were not statistically significant for counterpart groups. These findings suggest that by reducing the reliance of parents on their adult children, Social Security may contribute to wealth building among economically disadvantaged households.

Recent trends in wealth inequality among older Americans in two surveys.

We document changes in wealth inequality across American households with a member aged 55 or older, comparing data in the Health and Retirement Study (HRS) with that in the Survey of Consumer Finances (SCF) between 1998 and 2016. We examine net wealth including housing, financial and nonfinancial assets and debt, without the cash value of insurances, DB pensions or Social Security wealth. We find very similar distributions of net wealth in the two surveys between the 25th and 90th percentiles, but substantially higher wealth in the SCF at the top of the distribution. Both surveys show an increase in wealth inequality between 1998 and 2016, first mostly due to increased wealth at the top, and, after 2012, due to an increase in the share of households with very little wealth as well. Both surveys agree that wealth inequality by education and race, already substantial in 1998, increased further by 2016.

The Displacement Effects of Social Security Wealth in a Transition Economy. The Case of Poland

The Displacement Effects of Social Security Wealth in a Transition Economy. The Case of Poland

The Impact of Social Security Wealth on the Distribution of Wealth in the European Union

The Impact of Social Security Wealth on the Distribution of Wealth in the European Union

Wealth concentration in the USA using an expanded measure of net worth

Abstract Defined benefit (DB) pensions and Social Security are important resources for financing retirement in the USA. However, these illiquid, nonmarket forms of wealth are typically excluded from measures of net worth. To the extent that these broadly held resources substitute for savings, measures of wealth inequality that do not account for DB pensions and Social Security may be overstated. This article develops an alternative, expanded wealth concept, augmenting net worth data from the Survey of Consumer Finances with estimates of DB pension and expected Social Security wealth. We explore the concentration of wealth among households ages 40–59 and find that (i) including DB pension and Social Security results in markedly lower measures of wealth concentration and (ii) trends toward higher wealth inequality over time, while moderated, are still present. Simulation exercises show that reductions in Social Security benefits significantly increase wealth concentration for the youngest birth-year cohorts.

Forecasting mortality inequalities in the U.S. based on trends in midlife health

Recent literature has documented a widening gap in mortality between older individuals of high versus low socioeconomic status (SES) in the U.S. This paper investigates whether this trend will continue. We analyze the health status of successive cohorts of 54–60-year-old U.S. individuals born between 1934 and 1959 and use a rich set of health indicators to forecast life expectancies. The detailed health measures come from the longitudinal Health and Retirement Study. We find that many health indicators have worsened recently. For example, rates of obesity, diabetes, and self-reported levels of pain sharply increased between 1992 and 2016. Directly relevant for mortality, recent cohorts report lower subjective survival probabilities. Using Social Security wealth as an SES indicator, we find strong evidence for increasing health inequalities. We predict overall life expectancy to increase further; but the increase will be concentrated among higher SES individuals and mortality inequality will continue to increase.

Perceived effect of financial risk protection by the Urban–Rural Resident Basic Medical Insurance Scheme: a mixed-methods study of rural residents in China

ObjectivesIt is to explore the perceived financial risk protection effect of the Urban–Rural Resident Basic Medical Insurance Scheme (URRBMI) and its influencing factors to provide evidence to further improve the...

African‐American and Hispanic Income, Wealth and Homeownership since 1989

This paper analyzes trends in the income, net worth, and homeownership of non‐Hispanic African‐Americans and Hispanics relative to non‐Hispanic whites in the United States from 1989 to 2016 and the reasons for those trends using data from the Survey of Consumer Finances. The wealth gap between African‐American and white families was much the same in 2007 as in 1989 but it lessened considerably for Hispanics. The net worth of both minorities declined sharply relative to that of non‐Hispanic whites from 2007 to 2016 and that decline was due largely to the lower rate of return on wealth of these two groups during the 2007–2010 period and largely due to the larger dissaving of these two groups during the 2010–2016 period. The paper also finds that the wealth gap is much smaller if net worth is augmented by pension wealth and especially by Social Security wealth.

Taxes and the revaluation of household wealth

AbstractI compare pre-tax and post-tax wealth levels and trends after netting out implicit taxes on tax-deferred assets and accrued capital gains. The analysis covers 1983–2016 for net worth (NW) and augmented wealth (AW), which includes pension and Social Security wealth. Netting out implicit taxes substantially reduces growth in mean and median NW and AW. However, the upward trajectory in NW and AW inequality is basically unchanged from using post-tax values. I also introduce bequest wealth, the value of the estate including death benefits. It is notably more equal than NW and has grown faster over time.

The Value of Delayed Social Security Claiming for Higher-Earning Women

This study estimates the expected benefit from delayed Social Security claiming for higher-earning, healthier women who can expect to receive more future income payments than other Americans. The expected net present value of Social Security payments from delayed claiming for healthy women is $179,999, or more than twice the value of delayed claiming for a male of average health. The benefit from delayed claiming ranges from a low of $16,548 per year to $29,395 per year for healthy women. Even average health women gain at least $132,202 in Social Security wealth by waiting until age 70 to claim Social Security income benefits. Significant gains to women who delay claiming are robust to a 2% increase in real discount rates and to a 21% reduction in income that could occur if the Social Security trust fund depletes in 2026. The added benefits from reduced longevity and inflation risk suggest that the failure to delay claiming results in a significant loss in both retirement wealth and expected welfare.

Social Security, Dead Capital and Economic Inequality

Economic inequality in America continues to grow, taking on ever greater economic and political importance. The reasons for increasing inequality are complex and widely debated, as are potential policies to address it. This paper focuses on a vital but unrecognized part of the story: how the social security retirement program has become a major systemic barrier to the acquisition of wealth by low- and moderate-income families, worsening inequality in general and the racial wealth gap in particular. Most families have no meaningful financial assets other than their social security wealth. Unlike other retirement savings, however, social security wealth is “dead capital,” completely inaccessible to families in need of resources to invest (in homeownership, most importantly) and to cope with unexpected financial shocks. After setting out the nature and magnitude of the problem, this article proposes a straightforward, practical remedy – the creation of Social Security Downpayment and Financial Emergency Loans – that would reduce inequality by helping families build financial security for themselves and wealth for future generations. These loans would counter the adverse effects of social security’s forced-but-inaccessible savings, opening the way to a much broader distribution of wealth.

Does Social Security Crowd out Private Wealth? A Survey of the Literature

Economic theory does not give clear predictions on the impact of social security on private wealth. The theoretical ambiguity and practical importance generated a large stream of empirical research. In this paper, we review the available evidence on displacement effects of social security. Our review includes over 100 theoretical and empirical contributions. Nearly 70% of the literature identifies the statistically significant impact of social security wealth on different forms of private savings. A strong majority of authors, who obtain statistically significant results find the negative impact of social security on private savings. The size of the impact varies. If we consider all contributions median study identifies a statistically significant, but small negative impact of social security on private wealth. Although the literature is large it has some common limitations. Probably the most important is the use of uniform and static life tables, which biases the true value of social security wealth. The literature is largely focused on developed economies, availability of research on middle-income and developing countries is low.

Social Security Wealth, Inequality, and Life-cycle Saving: An Update

Social Security Wealth, Inequality, and Life-cycle Saving: An Update