Wealth Concentration in the United States Using an Expanded Measure of Net Worth 
Defined benefit (DB) pensions and Social Security are two important resources for financing retirement that are often excluded from data, resulting in incomplete measures of wealth and representations of household wealth concentration. In this paper, the authors estimate an expanded measure of wealth that includes DB pensions and future Social Security benefits and show how that inclusion affects estimates of wealth inequality in the United States as well as trends over time. They further illustrate the impact Social Security has on these measures by simulating distributions under a scenario in which expected future Social Security Trust Fund shortfalls are addressed through a reduction in benefit payouts.
Key Findings
- Even for the median household in the wealth distribution, the present value of defined benefit (DB) pensions and Social Security benefits accounts for more than half of all wealth.
- Including DB pensions and Social Security benefits in measures of wealth results in markedly lower wealth concentration and moderates trends toward higher wealth inequality over time.
- More specifically, the “90/50 ratio”—the ratio of wealth held by those at the 90th percentile of wealth to those at the 50th percentile—is reduced by nearly half for the 50–59 age group (from 13.4 to 6.8 in 2019) and for the 40–49 age group (10.7 to 6.4) when the estimated value of Social Security benefits are included in measures of wealth.
- The “50/10 ratio” falls from 13.1 to 4.3 among those aged 40 to 49 and from 21.3 to 4.2 for the 50–59 age group when Social Security benefits are included.
- The share of wealth held by the top 5 percent of the distribution drops from about 72 percent to 51 percent when the value of defined contribution (DC) plans and DB pensions are included in measures of wealth; it falls even further, to 45 percent, when Social Security benefits for those aged 40 to 59 are included.
- Simulations of a policy scenario that reduces Social Security benefits to 75 percent of current benefit levels increases, by various measures, the share of wealth held at the upper end of the distribution
Implications
Retirement is a major reason for saving among many households, and DB pensions and Social Security are significant retirement resources for most households. Because DB pensions and Social Security crowd out other forms of savings, including them in measure of wealth can foster a more complete understanding of wealth and resources. This expanded wealth measure also can provide a clearer picture of trends in wealth concentration and lead to a better understanding of the implications of policy for wealth distribution and economic well-being.
Abstract
Defined benefit (DB) pensions and Social Security are two important resources for financing retirement in the United States. However, these illiquid, non-market forms of wealth are typically excluded from measures of net worth. To the extent that these broadly held resources substitute for savings, measures of wealth inequality that do not account for DB pensions and Social Security may be overstated. This paper develops an alternative, expanded wealth concept, augmenting precise net worth data from the Survey of Consumer Finances with estimates of DB pension and expected Social Security wealth. We use this expanded wealth concept to explore the concentration of wealth among households aged 40 to 59 and find that (1) including DB pension and Social Security results in markedly lower measures of wealth concentration and that (2) trends toward higher wealth inequality over time, while moderated, are still present.