Social Security is the most valuable thing most Americans have.
I don’t mean this in an abstract sense. In purely financial terms, the Social Security check that you are getting now or have a right to receive when you are older is your most valuable financial asset.
That statement is true for nearly everyone except those in the top 10 percent of the wealth distribution in the United States. And for people right in the middle, Social Security amounts to roughly one-third of their total wealth, on average, according to an eye-opening study by the nonpartisan Congressional Budget Office.
For poorer people, Social Security isn’t just the most valuable asset they’ve got. It can be absolutely crucial — the difference in old age between destitution and a bare modicum of survival. And it helps people with disabilities and children as well as older Americans. Social Security lifts more people out of poverty than any government program, according to a separate study by an independent research institute the Center on Budget and Policy Priorities.
Anything this important ought to receive far more attention and respect than it has been getting. Instead, Social Security is a neglected responsibility of the political classes — a precious 90-year-old legacy that has been allowed to fall into disrepair.
Consider this: If Social Security is your most valuable asset — and it is, for nine out of 10 households, according to the budget office — protecting Social Security ranks among the most important things that will help you financially.
So How Much Is It Worth?
It may seem odd to think of Social Security as a component of wealth, or even as a financial asset. It provides income, certainly: The average monthly Social Security payment for a retired worker in June was $2,005, the government says. It was more for some people and less for others, depending on factors like how much you earned in your working years and when you opted to start receiving Social Security checks. Those benefits keep coming and they are adjusted for inflation.
You can’t cash out all of your promised benefits at once, in a big lump sum. Yet it’s wealth, and it can be calculated just like any other stream of income.
How this works is a little technical. Skip the next paragraph if you like. It involves something taught in business school — how to calculate the net present value of future cash flows.
Fundamentally, this approach gives real-world substance to an old proverb: A bird in the hand is worth two in the bush. When you have the right to receive a future stream of money — say, a pension or a Social Security check — those promised funds can be translated into the equivalent value of a lump sum available now. Using standard models, the budget office concluded that, in the case of Social Security, those promised benefits are equivalent to considerable current wealth.
The budget office report, “Trends in the Distribution of Family Wealth, 1989 to 2022,” found, in fact, that Social Security amounted to roughly 20 percent of the $199 trillion in total wealth of all American families in 2022. Social Security, in other words, was worth about $40 trillion to Americans in 2022.
For the median family, it found that Social Security accounted for about one-third of total wealth, more than the value of cars or homes, retirement accounts, whatever. On average, the wealth of people right in the middle added up to $504,000, the study estimated.
Let’s break that down a little further. For all families in the bottom 50 percent of the wealth distribution, Social Security, on average, amounted to 40 percent of their total assets. And for those in the bottom 25 percent, whose “wealth” was an estimated $74,000, the value of Social Security accounted for more than half of these assets.
I ran some of the numbers myself in 2022, and looked for ways of pricing Social Security on the open market, as an inflation-adjusted annuity. I found then that Social Security was worth hundreds of thousands of dollars for the average person and, for higher-income people who deferred claiming benefits until the age of 70, it was worth well over $1 million, if it could be priced at all.
Because Social Security is progressive — meaning, for lower-income workers and their dependents it replaces a higher percentage of earnings than it does for richer people — it serves as a counterbalance to widening wealth inequality in the United States.
The richest 1 percent of families held 27 percent of all wealth in 2022, up from 23 percent in 1989, the Congressional Budget Office found. The top 10 percent of families “held 60 percent of all wealth, up from 56 percent in 1989.” Without including Social Security, the report found, “the share of wealth held by families in the top 10 percent of the distribution is even larger — 69 percent.”
These estimates were based on the assumption that all of the promised benefits of Social Security will actually be paid.
But unless Congress and the president act to bolster Social Security finances, benefits will be reduced.
The rich would be virtually unaffected by Social Security benefit cuts, the report said. Nearly everybody else would take a big hit to their incomes and their total wealth.
The So-Called News
Bad “news” about the Social Security Trust Funds appears annually, like clockwork. It is dutifully reported nearly everywhere. This June, for example, the system’s trustees announced that the main trust fund, the one that pays retiree and survivor’s benefits, will run out of money in 2033. Benefits could be trimmed 23 percent — if Congress doesn’t take action before then.
The details of the possible benefit cut shifted somewhat over the last year. But aside from a few new details, the annual announcement was expected and predictable.
The basic situation hasn’t changed for years: Social Security is sending out more money in benefits than it is receiving in taxes. There’s nothing shocking about this. Since the 1950s, it has been obvious that the gigantic baby boom generation would cause problems for Social Security one day, if adjustments weren’t made. And right on schedule, those problems arrived.
Boomers have been dutifully paying into the system for decades, and now they are beginning to receive what they were promised. But under current rules, the work force paying taxes and defraying the Social Security benefits of current recipients isn’t big enough to do the job.
Americans, on average, have been having fewer babies. The immigrant population is an exception to the trend of lower fertility, but if the administration’s crackdown on immigrants continues, or becomes harsher, it will constrain the growth of the future work force.
These trends are putting stress on Social Security. The trust fund, which is being used to make up the difference between spending and income, is shrinking.
Preserving all promised benefits will require increased taxes. That’s simple. Who would pay isn’t as straightforward. I reported last year that raising taxes a small amount — increasing the 12.4 percent Social Security payroll tax by 3.5 percentage points, half borne by employers and half by employees — would fix the problem. Raising the amount paid by richer people, and limiting or eliminating the tax increase for those with smaller incomes, seems fair to me.
But without getting lost in the weeds, it’s clear that we need a fix — and that the overwhelming majority of people would be better off if we have one.
I spend a lot of time in these weekly columns discussing investment strategies, taxes, corporate earnings, government policies, the Federal Reserve and a host of other issues. All of this matters. But Social Security is the most important asset that most Americans have.
Congress and the president are responsible for this problem. They need strong reminders that they’ve really got to fix it.
Jeff Sommer writes Strategies, a weekly column on markets, finance and the economy.
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