Asked to calculate our net wealth, most Americans would add up our equity in our homes, bank accounts, stocks, bonds, and retirement accounts.
Yet according to a recent report in The New York Times by financial expert Jeff Sommer, we probably would have forgotten to include our largest asset: Social Security.
According to Mr. Sommer, only if we are wealthy enough to be in the top 10% of Americans would Social Security probably not be our biggest asset.
In June of this year the average retired worker received $2,005 a month in Social Security benefits.
To see what this means about that worker's net worth we need to ask how much it would cost at age 65 to buy an annuity paying $2,005 per month for the rest of that person's life with protection against any future inflation.
Such an annuity would probably cost about $400,000 to $450,000.
The median retirement account for Americans in their early 60s is only about $200,000.
The average equity in a house for Americans in their early 60s is only about $310,000.
Social Security is therefore a very major part of the average American's total assets, and for poorer Americans with fewer other assets it's an even more major part.
As Jeff Sommer points out in his article, this means that Social Security “serves as a counterbalance to widening wealth inequality in the United States.”
Of course, unlike a house, stocks, or bonds that could be sold, or a bank account that could be spent, we can't get our hands on this part of our wealth if we want to buy something that is extremely expensive. We can only reap the benefits of this wealth by receiving our monthly Social Security benefits.
And unlike our other assets, our wealth in Social Security usually disappears when we die and cannot be passed along to our heirs.
The exception is that a surviving spouse can elect to receive those benefits if they are higher than his or her own.
Collectively, Sommer estimates that Social Security constitutes about 20% of the assets held by Americans, or about $40 trillion (with a T!) out of total private wealth of $199 trillion. This is not exactly just pocket money!
This is why the possibility that Social Security benefits may have to be reduced by about 23% when its main government trust fund runs out of money in 2033 is such a serious problem.
This will have to be done, according to current law, if Social Security taxes are not increased or some other means of financing benefits devised, since only money coming in currently from the FICA payroll tax would be available.
Given the fact that Social Security is an especially important part of the wealth of poorer Americans, it would hit these people hardest.
We should not forget that Social Security has been a major stabilizing force in our economy protecting us from protracted recessions or worse.
During economic downturns when unemployment is soaring, even employed people hesitate to spend because they fear being laid off themselves.
But Social Security benefits can be depended on even during these downturns.
This means that consumer spending will remain higher just when it’s needed.
We did not have this protection during the Depression beginning in 1929 because Social Security had not been enacted yet.
On top of pension benefits, Social Security also provides disability protection for younger Americans.
Let's keep the economy on an even keel.
Americans of all economic levels should insist that Congress make the small increase in payroll taxes needed to protect monthly benefits, protecting the Social Security that is nearly everyone's main asset.
Paul F. deLespinasse is Professor Emeritus of Political Science and Computer Science at Adrian College. Read Professor Paul F. deLespinasse's Reports — More Here.
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