Social Security as a Financial Asset: Gender-SpeciÞc Risks and Returns

Social Security is a Þnancial asset whose ‘purchase’ is compulsory for most working individuals. This paper shows that the return on Social Security during the individual’s working lifetime is related to the rate of change of aggregate labor income. If an individual’s labor income is strongly related to aggregate labor income, then the Social Security asset is a particularly unattractive asset. In this situation, the individual would beneÞt from a reformed Social Security system that would permit investment of retirement funds in other Þnancial assets. This paper investigates how this aspect of Social Security risk varies across groups of individuals who differ according to gender; education; race; and age. The main Þnding is that there are important differences across groups in this component of Social Security risk, as captured by the sensitivity of individual-level income growth to changes in the SSWI. This element of risk is most important for women, especially women who are young-to-middle aged and with more education. This analysis suggests that women would have more to gain, compared with men, from a reformed Social Security system. ∗David Arsenau provided excellent research assistance for this project.