The Nexus of Social Security Benefits, Health, and Wealth at Death
Social Security (SS) benefits are the most important component of the income of a large fraction of older Americans. A significant fraction approach later life relying heavily on SS benefits. Persons in poor health in old age have a higher-than-average probability of having experienced low earnings while in the labor force, increasing the risk of having low SS benefits in retirement. While the progressivity of the SS benefit formula provides a safety net to support low-wage workers in retirement, a noticeable fraction still have income below the poverty level in their last years. In general, low assets and low income in old age are strongly related to poor health. We explore this nexus and describe the relationship between SS benefits and the exhaustion of non-annuity assets near the end of life. We examine the relationship between the drawdown of assets between the first year an individual is observed in the AHEAD data (1995) and the last year that individual is observed before death, and that individual's health, SS benefits, and other annuity benefits. SS and defined benefit pension benefits are strongly "protective" of non-annuity assets, with a negative relationship between these income flows and the likelihood of exhausting non-annuity assets.
This research was supported by the U.S. Social Security Administration through grant #5 RRC08098100-04-00 to the National Bureau of Economic Research as part of the SSA Retirement Research Consortium. Funding was also provided through grant number P01 AG005842 from the National Institute on Aging.
James M. Poterba
In addition to my role as a faculty member at MIT, I am engaged in a number of outside activities. In the last three years, I have been:
(i) President of the National Bureau of Economic Research, a non-profit organization devoted to economic research (www.nber.org).
(ii) Trustee of the College Retirement Equity Fund (CREF) and independent director of the TIAA-CREF mutual funds (www.tiaa-cref.org).
(iii) Trustee of the Alfred P. Sloan Foundation (www.sloan.org). (since June 2009)
(iv) Member of the Panel of Economic Advisers at the Congressional Budget Office (www.cbo.gov).
(v) I periodically receive compensation for lectures or presentations. During the last three years, I have received amounts in excess of $500 from each of the following organizations: The American Economic Association, the Bradley Foundation, Clemson University, Elon University, the Institute for Fiscal Studies (London), the Investment Company Institute, Queens University, Tulane University, the University of Rochester, and the University of Wisconsin.David A. Wise
David Wise received support for this research from the National Institute on Aging, grant numbers P01-AG005842