Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42 Page 43 Page 44 Page 45 Page 46 Page 47 Page 48 Page 49 Page 50 Page 51 Page 52 Page 53 Page 54 Page 55 Page 56 Page 57 Page 58 Page 59 Page 60 Page 61 Page 62 Page 63 Page 64 Page 65 Page 66 Page 67 Page 68 Page 69 Page 70 Page 71 Page 72 Page 73 Page 74 Page 75 Page 76 Page 77 Page 78 Page 79 Page 80 Page 81 Page 82 Page 83 Page 84 Page 85 Page 86 Page 87 Page 88 Page 89 Page 90 Page 91 Page 92 Page 93 Page 94 Page 95 Page 96 Page 97 Page 98 Page 99 Page 100 Page 101 Page 102 Page 103 Page 104 Page 105 Page 106 Page 107 Page 108I NCOME & WEALT H 66 The data in Figures 3-6 and 3-7 tell an inter- esting story but paint an incomplete picture of wealth in the United States. Wealth is a difficult concept to measure completely be- cause a good portion of one’s wealth in older age may be in the form of claims to income in the future such as Social Security benefits or pensions. Wealth in the form of cash today can be used to purchase an annuity that will provide future income, but in general it is not possible to “sell” one’s claims to Social Security or pension benefits for cash today. Nevertheless, it is analytically useful to put Social Security and pensions on the same footing as cash or mutual funds by comput- ing an equivalent amount of wealth for them. Analysts refer to this wealth equivalent as the present discounted value of future benefits. It is calculated using a discounting formula that takes into account the fact that a dollar 10 years from now is worth less to someone than a dollar today. Researchers are now using HRS data to devise more comprehensive measures of wealth that include the discounted value of future entitle- ments. One effort divided household wealth into seven categories: the present discounted value of Social Security benefits, the present discounted value of defined-benefit pensions, the present discounted value of other annui- ties, the current value of retirement accounts, all other net financial wealth, housing equity, TBL. 3-2 Average and Median Household Wealth, by wealth component: 2000 Notes: The median HRS household has no wealth from a defined-benefit pension or from another type of annuity. Therefore, the median values for these variables are zero. *Total median household wealth is not the sum of the table rows. Source: Poterba 2004. Wealth Component Average Median Social Security $160,700 $159,900 Defined-Benefit Pension $136,300 $0 Other Annuity $5,000 $0 Retirement Accounts $94,300 $4,500 Other Financial Wealth $181,600 $30,000 Housing Equity $104,200 $70,000 Other Wealth $129,500 $15,000 Total $811,600 $454,800* and all other wealth (Poterba 2004). This study used an innovative methodology to determine the present discounted value of different future entitlements. Social Security wealth was calculated using reported Social Security payments of HRS participants who were receiving Social Security and the ex- pected Social Security payments reported by people who were not yet receiving benefits. Future payments were then discounted using demographic mortality tables and adjusted using Social Security Administration (SSA) assumptions about future interest and inflation rates. Other defined-benefit payments were assumed to be fixed in nominal terms and were discounted using the SSA interest rate. Data on defined-contribution plans were collected from a special HRS employment module and included in the “current retirement accounts” category. They included the retirement-plan balances that workers have at their current jobs, plus any balances from previous employers. By combining these estimates with other cat- egories of wealth, the study estimated average Refining the Measurement of Wealth