Field Work

Why Minorities Need Social Security More

The U.S. population is in the midst of a transition from predominantly white to one in which “minorities” will one day be the majority.

A Social Security Fact Sheet recently published by the Center on Budget and Policy Priorities in Washington throws a fresh perspective on the program, which provides the financial bedrock for most retirees. It shows that the program is even more important to African-Americans and Latinos than it is for white Americans.

Seventy-three years after Ida May Fuller became the first person to receive a Social Security check, on Jan. 31, 1940, Social Security provides more than half of the retirement income received by about two out of three elderly white Americans. But many more – about three out of four – African-American and Latino retirees rely on Social Security for more than half their income.

The obvious reason is that minorities earn lower incomes on average while they are working, according to Kathy Ruffing, a senior fellow at the Center, and that has “hampered their ability to save for retirement.”

Congress intended Social Security to be a progressive program that benefits lower-income individuals more. The Social Security Administration’s (SSA) formula for calculating the monthly check is designed to replace a larger share of the employment income of, say, a maintenance worker who has retired than it does for a retired corporate executive. (Full disclosure: SSA funds this blog.)

Social Security is now more critical than ever to whether retirees can make it financially, because traditional pensions are becoming rare. African-Americans and Latinos who are 65 or older were less likely to work for an employer that offered its employees a traditional pension, according to SSA data.

African-Americans and Latinos are behind the retirement 8 ball in another way that’s related to their income and their greater difficulty generating wealth: only about one in four African-Americans and Latinos over 65 receives income from investments, while more than half of whites do.

Ruffing said that married couples have historically done better economically, which benefits them in retirement, but marriage rates among African-Americans and Latinos are also lower.

It helps to be married, because two-income couples may have two pensions to draw on while they’re both retired. “Economies of scale” also benefit them, because they can split up their housing and other large expenses, she said. And when one spouse dies, the spousal benefit from Social Security may be higher than the living partner’s pension from their own employment.

A widow typically experiences a decline in her living standard. “Even so,” Ruffing said, “widows are better off economically than women who were never married.”

America’s pension system is often described as being precariously perched on the proverbial three-legged stool: Social Security, employer pensions, and investment income. The Social Security leg is by far the strongest for the nation’s African-Americans and Latinos.

7 Responses to Why Minorities Need Social Security More

  1. david says:

    I would like to say that every one does have a right to Social Security. This article was very good.

  2. K Ruffing says:

    One important thing that the author neglected to clarify in the graphs: these are data for Social Security beneficiaries age 65 or older, from the agency’s biannual “Income of the Population 55 and Older” report.

  3. Michael Waggoner says:

    One can imagine a system of 401(k)s that would produce good retirement income. Investing 15% or more of every pay-check, into low-cost broadly-diversified index funds, not withdrawing or borrowing (other than periodically for retirement) and not trying to time the market. Unfortunately that is not the system we have, making Social Security all the more important.

  4. Thanks for sharing. love that old advertisement for Social Security. We are in the midst of various discussions on Social security and hopefully we end up going in the right direction in the future.

  5. joel says:

    Initially, the intent of Congress was to have a contributory plan where each worker would save for his own retirement. It was only later that Congress changed the benefits formula to “redistribute” income from the wealthier to the less wealthy. See the History section on the SSA website.

    The significance of the new social insurance program was that it sought to address the long-range problem of economic security for the aged through a contributory system in which the workers themselves contributed to their own future retirement benefit by making regular payments into a joint fund. It was thus distinct from the welfare benefits provided under Title I of the Act and from the various state “old-age pensions.” As President Roosevelt conceived of the Act, Title I was to be a temporary “relief” program that would eventually disappear as more people were able to obtain retirement income through the contributory system. The new social insurance system was also a very moderate alternative to the radical calls to action that were so common in the America of the 1930s.

  6. Social Security is one significant aspect in a country because it obviously secures the people in the country. So it is very important to make one country’s Social Security become more active and well-organized. I totally agree that everybody has the right to have Social Security. Thank for this article! I really had a great time reading this article.

  7. Web Design says:

    I agree with the first comment. White or not, everyone should be entitled to Social Security. Good article.