Social Security Eases Racial Disparities

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Social Security is a major source of income for most retirees. It is even more important to blacks and Hispanics in a nation that is becoming increasingly diverse.

Social Security is helping to even out the racial and ethnic inequities in income and wealth that exist in the working population and continue in old age, according to a study by the Center for Retirement Research for the Retirement and Disability Research Consortium.

The researchers estimate how much Social Security reduces this inequality by comparing retirement wealth for white, black, and Hispanic-Americans.

Wealth is defined broadly to include obvious things like home equity and financial assets such as 401(k) retirement accounts, certificates of deposit, and money market accounts. In addition, the researchers converted the income that workers get from Social Security and defined benefit pensions into wealth by estimating the total value today of their future benefit checks.

The estimates of wealth, when Social Security is excluded, reveal enormous disparities. The typical white worker in his early- to mid-50s can expect to have about $177,000 in non-Social Security wealth in retirement, compared with just $24,000 for blacks – about a 7 to 1 ratio. Hispanics have $35,000 – or a 5 to 1 ratio.

These ratios improve dramatically, dropping to roughly 2 to 1 when Social Security is added in. The white worker has $378,000 in total wealth, compared with $173,000 for blacks and $186,000 for Hispanics.

Social Security’s progressive benefit formula reduces retirement inequality by replacing more of the income of lower-paid workers. The program also provides nearly universal coverage, whereas many workers do not have access to retirement plans at work. These features help black and Hispanic workers, who tend to have lower incomes and are also less likely to have retirement plans.

“Social Security is the most equal form of retirement wealth and the most important source for most minority households,” the researchers conclude.

To read the study, authored by Wenliang Hou and Geoffrey Sanzenbacher, see “Measuring Racial/Ethnic Retirement Wealth Inequality.”  

The research reported herein was derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium.  The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the federal government, or Boston College.  Neither the United States Government nor any agency thereof, nor any of their employees, make any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report.  Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.



This is such a great article to read and get information from.
I am glad that I came across this article.

Keep up the amazing article.

Mary Gunn

This is a great article. I was unaware of the increased replacement of wages for lower income workers-I think this a great way of helping people.

Susan Allen

Unbelievable! Is SS going to supplement social benefits to the whites who do not make as much as others? What about all the women who do not make as much as men, even blacks and Hispanics?
Is this a form of income re-distribution? We all work hard for our money and save for retirement. Why should taxpayers pay for this even things out policy? There has to be another way to help people.

    Kim Blanton Squared Away blogger

    Susan – Thanks for the great question!

    Social Security uses exactly the same formula to calculate retirement benefits for every single worker who contributes to the program. So, a white retired person and a Latino who earned exactly the same amount and worked the same number of years are getting the same amount in their monthly Social Security checks.

    But Social Security’s formula for calculating benefits is more generous to retirees who had lower incomes when they worked, because they need it more. And black and Latino workers have lower incomes on average.

      david fagan

      Thanks for the great answer.

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