The Nexus of Social Security Benefits, Health, and Wealth at Death

James M. Poterba, Steven F. Venti, David A. Wise

Chapter in NBER book Discoveries in the Economics of Aging (2014), David A. Wise, editor (p. 159 - 182)
Conference held May 9-11, 2013
Published in June 2014 by University of Chicago Press
© 2014 by the National Bureau of Economic Research
in NBER Book Series - The Economics of Aging

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.

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This chapter first appeared as NBER working paper w18658, The Nexus of Social Security Benefits, Health, and Wealth at Death, James M. Poterba, Steven F. Venti, David A. Wise
Commentary on this chapter: Comment, Jonathan Skinner
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