JSIT19-05: The Impact of Social Security Eligibility on Transfers to Elderly Parents and Wealth-Building among Adult Children

Abstract

In this study, I will explore the impact of social security eligibility on transfers between adult children and elderly parents and the resulting impact on wealth building among adult children. I will also study these relationships across different socioeconomic groups to investigate potential effects of social security on inequality in inter-generational transfers and savings. As concerns continue to grow about how to make social security sustainable, including proposals to change the age at which people qualify for benefits, this research is timely in that it looks at the downstream effects of social security on the next generation. If social security reduces upstream transfers and increases savings of the next generation, cutting benefits or increasing the retirement age of current retirees may mean an increase in the number of people who will need social security in the future. I will contribute to the literature in three ways. One, I will focus primarily on transfers from adult children to elderly parents. The role of parents-to-children transfers and the resulting impact on wealth inequality is well documented. What is less documented is the role of children-to-parents transfers and the effect on the perpetuation of poverty and inequality. Two, I will study the role of social security as a mediator between children-to-parents transfers and the resulting impacts on wealth of the children. And three, I will add to the literature by investigating these relationships across different demographic groups. Much of the literature looks at averages across the population, even while the data shows that disadvantaged groups rely more on social security income and are thus more likely to be affected by changes to social security policies. I will use data from the Panel Study of Income Dynamics (PSID) and will employ a regression discontinuity design (RDD) to describe these relationships. I will look at patterns of transfers and savings in the years before the social security eligibility threshold (age 62) versus these outcomes in the years after age 62. While I will not be able to say that the effect of social security is causal due to selection issues and data limitations, this descriptive study will be instructive as a first step in delineating the outcomes studied.