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

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

Abstract

Social Security benefits are the most important component of the income of a large fraction of older Americans. A significant fraction of persons approach the end of life with few financial assets and no home equity, relying almost entirely on Social Security benefits for support. Whether persons reach late-life with positive non-annuity wealth depends importantly on health, which is quite persistent over the life-time. Persons in poor health in old age have a higher-than-average probability of having experienced low earnings while in the labor force, which puts them at greater risk of having low Social Security benefits in retirement. While the progressivity of the Social Security benefit formula provides a safety net to support low-wage workers in retirement, a noticeable fraction of persons, especially those in single-person households, still have income below the poverty level in their last years of life. Many of these individuals have few assets to draw on to supplement their income, and are in poor health. 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 Social Security 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, Social Security benefits, and other annuity benefits. We conclude that Social Security 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. We note that this result may in part reflect population heterogeneity in saving propensities. We also find that poor health is an important determinant of the drawdown of non-annuity wealth.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18658.

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Date of creation: Dec 2012
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Publication status: published as The Nexus of Social Security Benefits, Health, and Wealth at Death , James M. Poterba, Steven F. Venti, David A. Wise. in Discoveries in the Economics of Aging , Wise. 2014
Handle: RePEc:nbr:nberwo:18658

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  1. Susann Rohwedder & Steven J. Haider & Michael D. Hurd, 2006. "INCREASES IN WEALTH AMONG THE ELDERLY IN THE EARLY 1990s: HOW MUCH IS DUE TO SURVEY DESIGN?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 52(4), pages 509-524, December.
  2. Seiritsu Ogura & Toshiaki Tachibanaki & David A. Wise, 2001. "Aging Issues in the United States and Japan," NBER Books, National Bureau of Economic Research, Inc, number ogur01-1, October.
  3. Michaud, P.C. & Soest, A.H.O. van, 2008. "Health and wealth of elderly couples: Causality tests using dynamic panel data models," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3133117, Tilburg University.
  4. James M. Poterba & Steven F. Venti & David A. Wise, 2010. "The Asset Cost of Poor health," NBER Working Papers 16389, National Bureau of Economic Research, Inc.
  5. Courtney Coile & Kevin Milligan, 2006. "How Household Portfolios Evolve After Retirement: The Effect of Aging and Health Shocks," NBER Working Papers 12391, National Bureau of Economic Research, Inc.
  6. Orazio P. Attanasio & Carl Emmerson, 2003. "Mortality, Health Status, and Wealth," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 821-850, 06.
  7. Wise, David A. (ed.), 2011. "Explorations in the Economics of Aging," National Bureau of Economic Research Books, University of Chicago Press, number 9780226903378, February.
  8. Peter Adams & Michael D. Hurd & Daniel L. McFadden & Angela Merrill & Tiago Ribeiro, 2004. "Healthy, Wealthy, and Wise? Tests for Direct Causal Paths between Health and Socioeconomic Status," NBER Chapters, in: Perspectives on the Economics of Aging, pages 415-526 National Bureau of Economic Research, Inc.
  9. Stephen Wu, 2003. "The Effects of Health Events on the Economic Status of Married Couples," Journal of Human Resources, University of Wisconsin Press, vol. 38(1).
  10. Anne Case & Angus Deaton, 2005. "Health and wealth among the poor: India and South Africa compared," Working Papers 169, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
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