Early Access to Social Security Wealth: A Welfare Analysis -
This work studies a modification to Social Security that distributes a universal lump-
sum transfer to individuals early in life in exchange for an actuarially fair reduction
in retirement benefits. The transfer is welfare-enhancing, particularly for credit-
constrained individuals. Using survey data, we first document persistent disparities
in credit access by income and race. Next we evaluate the transfer policy in a
quantitative overlapping-generations life-cycle model with incomplete markets and
race and education heterogeneity. We find that a lump-sum transfer of $40,000
at age 25 generates positive welfare gains for all race-education groups, equivalent
to a 1.0–2.6 percent increase in lifetime consumption. Welfare gains are driven by
improved consumption smoothing and reduced borrowing costs, and they decline
sharply if the transfer is introduced later in life. We show that interactions with
means-tested programs, differential mortality, and bequest motives matter for the
magnitude, but not the sign, of welfare effects. Overall, a universal program that
transfers a portion of an individual’s Social Security wealth earlier in life improves
welfare without increasing government outlays.