Social Security Particularly Helps Black Retirees

A new study finds that Social Security is more valuable to Black retirees than to Whites – despite the fact that Blacks have shorter lives and receive monthly benefits for fewer years of retirement.

The main reason Black retirees get more value from the program boils down to something that is crucial for a true understanding of why Social Security is so important to all retirees: the guarantee of having a monthly payment for life when it’s impossible to predict how long any individual retiree will live.

This unpredictability is known as longevity risk, and even though Blacks tend to die younger than Whites, they also have more longevity risk. This simply means there is a bigger dispersion between the ages of the Black retirees who die young and the Black retirees who live into their 90s or beyond. The people who live the longest need their inflation-adjusted Social Security for many years after any savings have been depleted.

For this reason, Social Security “increases racial equity in retirement even more than [is] suggested by measures based on expected benefits alone,” the study concluded.

This way of thinking improves on a common but simplistic measure of Social Security’s value: the expected total amount people will receive in their monthly checks compared with how much in payroll taxes they paid while they were working.

But the researchers looked at how this money’s worth calculation for Black and White retirees compares with the additional protection Social Security provides to people who live longer than others in their race or class. They compared 12 different groups: high- and low-income single men, high- and low-income single women, and high- and low-income couples.

In every case, Black retirees came out ahead. Consider this example. The value of the lifetime benefit to the most-educated single Black men is more than two times the value based on the simpler measure of total benefits in excess of contributions. For the most-educated White men, it’s less – about 1.6. The reason: the disparity in lifespans within the Black population – the longevity risk – is larger than the disparity for Whites.

Social Security has long been considered an important federal program because Blacks and Hispanics tend to get more from a generous benefit formula that returns more bang for every buck that lower-income workers put into the system.

This research shows that the program’s value goes far beyond that.

To read this study by Karolos Arapakis, Gal Wettstein, and Yimeng Yin, see “What is the Insurance Value of Social Security by Race and Socioeconomic Status?”

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.