The Role of Social Security Wealth in Wealth Inequality: 1989 to 2022

• In Event: Impact of Pension Reforms

Abstract

We use information from the Survey of Consumer Finances (SCF) and data from the Financial Accounts of the United States from 1989 through 2022 to examine how including Social Security wealth in the definition of wealth changes conclusions about the level of wealth concentration and trends in wealth inequality over time. We define Social Security wealth as the present discounted value of the expected stream of income from Social Security retirement and disability benefits associated with current or past jobs that families have earned rights to receive. Because eligibility for Social Security and the level of benefits depend on families’ earnings over their lifecycles, we apply a regression method based on data from the Current Population Survey to impute lifetime earnings and project future Social Security benefits for each family in the SCF.

Results show that including Social Security in a comprehensive measure of wealth reduces levels of wealth inequality and mitigates the trend of increasing wealth concentration over the past 33 years—both the Gini coefficient of family wealth and the share of wealth held by families in the top 10 percent of the distribution are reduced. Social Security accounts for a larger share of the assets of families with low income, low education, and those who are Black or Hispanic, than it does for other families.

Finally, we examine the sensitivity of our results to various methodological assumptions, including different discount rates and several definitions of wealth, and assess their importance in measures of wealth concentration over time.

Authors

• Elizabeth Ash, Northwestern University

• Nadia Karamcheva, Congressional Budget Office