What Is the Insurance Value of Social Security by Race and Socioeconomic Status?
Gal Wettstein, Karolos Arapakis, and Yimeng Yin, Boston College
This project will use the Health and Retirement Study to calibrate a behavioral lifecycle model yielding the utility value of OASI to households by race and socioeconomic status (SES). Utility measures are the only way to evaluate OASI’s insurance value; this approach is central to valuing private sector annuities (Mitchell et al. 1999). SSA has an interest in OASI’s role in reducing disparities in well-being by race.
OASI worker, spousal, and survivor benefits provide a basic level of support in old age that is particularly valuable to Black and low-SES households, who often lack other resources. Differences in resources notwithstanding, disparities in mortality between SES groups may nevertheless lead to lower expected lifetime benefits for Black workers and those with low education. However, the expected value of benefits neglects OASI’s longevity insurance value. The value of such insurance grows with longevity risk – the variance of longevity. In particular, Blacks have greater variance in longevity than whites.
Publications
