Is Social Security Wealth?

Abstract

Wealth inequality has grown significantly over the last three decades and there are growing concerns about the diminishing wealth share of the middle class. Standard wealth definitions require that individuals possess a legal claim to any assets included as wealth. Consequently, accrued Social Security benefits are not considered wealth because workers and retirees lack a legal claim to receipt of those benefits. However, as of 2014 these accrued benefits were estimated to be $31 trillion, or over 40% the size of conventional measures of household wealth. Though they do not meet the formal definition of wealth, the existence of these benefits affected the lifecycle savings behavior of current recipients and will affect the savings behavior of current workers. This study identifies Social Security wealth as the accrued benefits based on past participation in the program. This definition is similar accrued pension wealth associated with defined benefit plans. The distributions of accrued Social Security benefits for the years 1985 to 2006 are derived from individual earnings record available in the Social Security Administration’s 2006 Earnings Public Use File. The estimated accrued Social Security benefits are much more evenly distributed than are the estimates of savings wealth. Individuals in the top 10% of the estimated wealth distribution, excluding Social Security, held 70% of wealth as of 2006, but only 33% of accrued Social Security benefits. Once accrued Social Security benefits are included in a total wealth measure, the percent of the total attributable to the top 10% declines to between 55% and 62%.