Social Security Wealth, Inequality, and Life-cycle Saving

Published: 2020
Project ID: UM20-16


Household wealth inequality in the U.S. has been rising, but those measures do not include Social Security. For individual Social Security participants, Social Security Wealth (SSW) is equal to the present value of future benefits less the present value of future taxes. Individuals face a lifetime of taxes to pay before they will receive any benefits, and thus SSW is negative at young ages. As individuals move through their taxpaying years, SSW gradually goes from very negative to very positive. Accrual of SSW over the working life is most dramatic for lower-income workers, because the progressive Social Security benefit formula implies that taxes paid while working are associated with proportionally higher benefits in retirement. The wealth perspective shows that Social Security interacts with other retirement wealth, and makes it possible to study how policy actions will affect inequality, savings, and labor force participation.