How Much Do Americans Depend on Social Security?
Tuesday, August 07, 2007
by Laurence J. Kotlikoff, Ben Marx and Pietro Rizza
Table of Contents
Characteristics of Representative Households
ESPlanner ™ was used to simulate 14 representative households with specific characteristics. Seven are single-parent households and seven are married couples. All begin with two children, born when their parents are ages 27 and 29. It is assumed that each household's labor earnings remain fixed in real dollars through time, investments earn a 3 percent real return (absent inflation and taxes), and each married and single adult lives to age 100. [See Table A-I.]
For example, in Table A-I, consider the single-parent household with annual earnings of $50,000. At age 30, initial assets (stocks, bonds, savings and checking accounts) are assumed to be valued at $12,500. Annual college expenditures are $12,500 per child, and the household's mortgage balance is $120,000 with a $1,500 monthly payment, $1,500 in annual property taxes, and $750 in annual home maintenance expenses. The assets, remaining mortgage balance and remaining college expenditures are extracted for this household at ages 35 and 65. The values for all the ages are then run separately in ESPlanner ™. Furthermore, each age is modeled with no Social Security benefit cuts, 30 percent benefit cuts and 100 percent benefit cuts.
With the exception of a $50,000 ceiling per household on college expenses, the non-earnings entries for the other households are scaled by their levels of earnings. For example, the households earning $100,000 annually have initial assets at age 30 of $25,000, twice the initial assets of the households earning $50,000.