CBO examines how incorporating Social Security wealth into standard measures of family wealth affects estimates of wealth inequality over time.
Summary
By Elizabeth Ash and Nadia Karamcheva.
Wealth inequality has increased significantly in the United States over the past several decades. This paper examines how incorporating Social Security wealth into standard measures of family wealth affects estimates of wealth inequality over time. Most existing studies have defined wealth as the sum of net worth—marketable assets minus debts—plus the present value of future income from defined benefit pension plans. That definition excludes a major source of retirement income: Social Security benefits.
This analysis uses data mainly from the Survey of Consumer Finances (SCF), supplemented with information from the Current Population Survey (CPS) and other sources, and defines Social Security wealth as the present value of the expected stream of income from Social Security retirement and disability benefits that families have earned the right to receive through past or current work. Because workers' eligibility for Social Security and their benefit amounts depend on their lifetime earnings, lifetime earnings are imputed to project the future Social Security benefits each family in the SCF will receive in retirement, using a regression framework and data from the CPS for the years 1976 through 2019.
Because Social Security wealth is more evenly distributed than other forms of wealth, incorporating it meaningfully lowers estimates of both the overall level and the growth of wealth inequality in recent decades. For example, including Social Security wealth reduces the Gini coefficient for family wealth in 2022 from 0.81 to 0.72 and reduces the share of total wealth held by families in the top 10 percent of the wealth distribution from 69 percent to 60 percent. Social Security wealth constitutes a larger share of total assets for families with lower income, families with less education, and families who are Black or Hispanic, compared with other groups. Sensitivity analyses reveal that differences in the estimated effects of Social Security wealth on inequality are driven largely by the choice of discount rate used to calculate the present value of future benefits and less so by other modeling choices.