In our economy the most important “asset” isn’t actually an asset. It’s not something you own. It’s a variety of promises that our government calls an “entitlement.” Some call it “virtual wealth.”
But most of us call it Social Security.
It’s the biggest asset most Americans have. It looms larger than any other asset on what the Federal Reserve Bank calls the household balance sheet. Just how much larger will amaze you. Try $134.3 trillion. (As you will soon see, that’s far larger than the net worth of every household in America.)
I don’t expect you to believe me, so I’m going to walk you through the government documents that tell the story.
We’re going to start this with a visit to table B.101 in the quarterly flow of funds figures compiled by the Federal Reserve. The table shows our collective assets, our liabilities and our net worth. The most recent figures, released in late September, were for the end of the second quarter of this year.
Here are some of those figures:
- Houses. Their total value was $22.3 trillion. That’s up nicely from 2011’s heartbreak low of $16.2 trillion. But we also had some $9.5 trillion in mortgage debt, leaving a net equity of $12.8 trillion. That’s double the 2011 low. Our homes come first because, other than cars, they are our most widely held asset. The figure for consumer durables---mostly cars--- was a mere $5.3 trillion, not considering the debt against them. In our consumer economy, most people have more at stake in the used car market than in the stock market.
- Mutual fund shares. Their total value was $6.7 trillion. That’s less than half the $14.5 trillion in directly owned corporate shares. Most people don’t own shares directly.
- Pension entitlements. This is a big number, $21.7 trillion. But pensions are another of those things that fewer and fewer people will ever have. According to Social Security, for instance, 51 percent of workers have no private pension coverage.
- Small business. Another $11 trillion can be found in the value of non-corporate businesses, the mom and pop places that are everywhere in America.
When you add things like our deposits, money market fund shares, the debts and loans we hold on others, we’ve got total assets of $103.7 trillion, total liabilities of $14.7 trillion and net worth of $89 trillion. (You might notice, here, that debt isn’t a big deal. Unfortunately, that debt, like assets, isn’t evenly distributed.)
How could anything be larger than $89 trillion?
We can learn by checking Appendix F in the 2016 Social Security Trustees Report. It uses a more comprehensive actuarial method for estimating future Social Security than the more traditional method. I’m referencing this method because the traditional one has resulted in an unending stream of unfunded liabilities and payroll tax increases over the last 60 years. Here are the figures:
- Current trust fund, $2.8 trillion
- Unfunded liabilities, $32.1 trillion
- Future payroll tax collections, $99.4 trillion
- Total: $134.3 trillion.
At an estimated $134.3 trillion, the value of Social Security dwarfs the value of our houses, our 401(k) s, 403(b) s and our IRAs. For most Americans, it dwarfs the value of any future inheritance, whether or not you include the $32.1 trillion in unfunded liabilities.
One surprising message here: Even the relatively affluent will find that Social Security is likely to be more important to their long-term well-being and security than anything else. Researchers James M. Poterba, Steven F. Venti and David A. Wise, for instance, did a study in which they estimated the virtual wealth value of Social Security and how it was distributed compared to other assets.
Their finding? Social Security’s virtual wealth was the dominant asset for 90 percent of all households. Social Security isn’t just for poor people who couldn’t save. It isn’t just for middle income families that struggle to save. It’s not just for people who never managed to own a home.
It’s the Big Kahuna.
And now consider this. Every year of low interest rates makes future Social Security benefits more valuable. The same low rates make other assets less valuable as retirement assets.
Do we have any marching orders from this? Yes. Old or young, retired or working, we need to start paying attention.