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

Published: 2020


Social Security wealth (SSW) is the present value of future benefits 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 claiming 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 2019 using detailed labor force history and expectations modules. We use a pseudo-panel approach to empirically demonstrate life-cycle patterns of SSW accumulation and drawdown. We also show that including SSW in a comprehensive wealth measure generally reduces estimated levels of U.S. wealth inequality, but does not reverse the upward trend in top wealth shares.

Key Findings

    • This study constructs empirical estimates of the present discounted value (PDV) of Social Security taxes and benefits using the Survey of Consumer Finances (SCF) for the years 1995 through 2019. Social Security wealth (SSW) is the net difference between the PDV of benefits and taxes. We add SSW to other components of household wealth in the SCF to create a more comprehensive measure of wealth and overall wealth inequality.
    • Aggregate SSW is quantitatively important when compared to other household wealth components. Our baseline estimated SSW for all SCF respondents and their spouses/partners in 2019 was about $24 trillion, which is substantial compared to the $115 trillion in all other household wealth, including DB pensions.
    • SSW is relatively more important for low-wealth families at any given age. This is unsurprising given that low-wealth individuals have much lower lifetime incomes, and the Social Security tax and benefit formulas are progressive. For example, the bottom 50% of persons ages 35 to 44 in 2019 had average household wealth around $22,000. However, the same group had average expected SSW of just over $50,000, the difference between a PDV of benefits around $137,000 and a PDV of taxes around $87,000. In contrast, the top 10% of persons ages 35 to 44 in 2019 had, on average, about $2,000,000 of household wealth. Their expected SSW was $86,000, the difference between a PDV of benefits around $254,000 and a PDV of taxes around $169,000.
    • Incorporating SSW into household wealth has a large impact on wealth inequality levels, but it does not change overall trends in top wealth shares. While the top 10% share of household wealth increased from 53% to 63% between 1995 and 2019, the expanded top 10% wealth share that includes SSW increased from 45% to 55%.
    • The final takeaway is based on connecting the estimated SSW values across cross-section survey waves for 10-year birth cohorts. By connecting the cohort averages between survey waves and drawing out the life-cycle patterns of SSW by age, we show how SSW starts out negative at young ages, increases steadily through retirement, and then gradually decreases during the remaining expected years of life (declines at older ages). These patterns can also be interpreted as much higher effective Social Security “saving rates” for low-wealth families.


Sabelhaus, John, and Alice Henriques Volz. 2020. “Social Security Wealth, Inequality, and Life-cycle Saving: An Update.” Ann Arbor, MI. University of Michigan Retirement and Disability Research Center (MRDRC) Working Paper; MRDRC WP 2020-416.