As the U.S. population becomes more diverse, it will be increasingly important for policymakers addressing Social Security’s solvency to understand how reliant various racial and ethnic groups will be on the program versus other sources of retirement wealth. Yet, to date, studies on retirement wealth have tended not to focus on race and ethnicity, have largely ignored the role of Social Security, or have excluded the most recent cohort approaching retirement – the Late Boomers. This project uses data from the Health and Retirement Study (HRS) to document the retirement resources of white, black, and Hispanic households at various points in the wealth distribution for five HRS cohorts of 51-56 year olds between 1992 and 2016.
The paper found that:
- In 2016, the typical black household had 46 percent of the retirement wealth of the typical white household, while the typical Hispanic household had 49 percent.
- This inequality would be much higher but for the presence of Social Security – black households had just 14 percent of the non-Social Security retirement wealth when compared to white households, and Hispanic households had just 20 percent.
- The 1992 to 2010 HRS cohorts showed little change in retirement wealth inequality, although a decline in 51-56 year old white households’ retirement wealth between 2010 and 2016 narrowed the racial and ethnic gaps in retirement wealth slightly.
- The progressivity of Social Security combined with lower average incomes for minority households means that replacement rates are more equal than wealth – in 2016, the replacement rate of black households was 82 percent of white households and Hispanic households was 95 percent.
The policy implications of the findings are:
- Across-the-board benefit cuts, such as increases in the Full Retirement Age, will have an outsize impact on black and Hispanic households’ retirement wealth.
- As policymakers consider changes to the Social Security program to shore up its finances, considering ways to mitigate any impact on these groups may be important.