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.

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