Social Security protects families in the event that a worker retires, becomes disabled or dies. These guaranteed insurance benefits are especially crucial to people of color who tend to have fewer alternative resources, become disabled at higher rates, and rely on Social Security's family benefit features disproportionately. Social Security provides many elderly Hispanics with their sole or primary source of income in retirement. Today’s Hispanic workers are concentrated in low-wage jobs that typically lack pension coverage. Hispanics experience high poverty and underemployment, and have less ability to save and invest for retirement than most other Americans. Because of low incomes throughout their working lives, elderly Hispanics may not have been able to accumulate savings and may depend almost exclusively on Social Security for their retirement income. Therefore, preserving the system with guaranteed benefits is crucial for Hispanics.
Hispanics Rely on Social Security for More of Their Retirement Income
While Social Security is expected to be only one part of a person’s retirement income, many minorities rely on it for a large share. Because Hispanics tend to have lower earnings and less pension coverage than white Americans, Social Security is extremely important for Hispanic retirees.
- Almost three-fourths (74%) of Hispanic beneficiaries rely on Social Security for at least half their income compared to almost two-thirds (64%) of all beneficiaries.
- Approximately 53% of Hispanic beneficiaries rely on Social Security for 90% or more of their income
- Approximately 43% of Hispanic beneficiaries rely on Social Security for all of their income.
Minorities rely more heavily on Social Security due to a lack of other income in retirement, especially income from assets.
- In 2012, 25% of Hispanics received income from private assets, compared with more than 55% of whites
- In 2012, 19% of Hispanics 65 years old and over reported receiving income from private pensions or annuities, compared to 41% of whites 65 years old and older
Elderly Hispanics are more dependent on Social Security than others because they are more likely to be living in poverty than non-Hispanic elderly. They are also more likely to have been poor prior to old age than non-Hispanics. Social Security reduces poverty for Hispanic elderly. In 2013, the average annual Social Security income received by Hispanic men 65 years and older was $14,148 and $10,931 for women. This compares to $16,590 for all men and $12,857 for all women.
- In 2012, 21% of Hispanics 65 years old and older had income below the poverty line, compared to 8% of white elderly.
- If not for Social Security, 49% of older Hispanic Americans would be living in poverty.
Program Aspects of Importance to Hispanics
Social Security provides many elderly Hispanics with their sole or primary source of income in retirement. Although Social Security’s benefit and contribution provisions are neutral with respect to race, ethnicity and gender, several features of the program are especially important to Hispanics. The progressive benefit formula intentionally helps low income earners, many of whom are Hispanic American.
In the aggregate, Hispanic Americans have higher disability rates and lower lifetime earnings, and thus receive greater benefits relative to taxes paid. Furthermore, due to higher than average life expectancy, Hispanics benefit from the Social Security program’s annual cost-of-living adjustment. An examination of socioeconomic and demographic factors influence on Social Security taxes paid and benefits received reveals that the program plays an extremely important role for Hispanics.
Progressive Benefit Formula
Social Security employs a progressive formula that intentionally returns a higher percentage of wages to low-and average-wage earners than it returns to those who have had high earnings. Lifetime earnings directly factor into Social Security’s progressive benefit formula. Hispanics, on average, have lower levels of lifetime earnings than white workers.
The median earnings of working-age Hispanics who worked full-time, year-round in jobs covered by Social Security in 2013 was about $30,000 compared to $43,000 for all working-age people. As a result of their over-representation among workers receiving the lowest earnings and their under-representation among workers receiving the highest level of earnings, Hispanics gain from Social Security's progressive benefit formula.
Hispanic Americans have higher rates of disability and consequently are more likely to receive benefits from the Social Security Disability Insurance (DI) program. In general, workers with a higher probability of becoming disabled have a higher benefits-received-to-taxes-paid ratio than those who are not disabled. This is because DI beneficiaries begin to receive benefits and cease contributing payroll taxes at an earlier age than workers who are not disabled. A high incidence of disability among Hispanic Americans increases their benefit-to-tax ratio. Moreover, because low-wage DI beneficiaries also gain from the program’s progressive benefit formula, low-wage disabled workers benefit from two aspects of the program. Hispanic Americans are disproportionately represented among both disabled workers and low-wage earners. Thus, DI plays an important role for Hispanic Americans.
Life Expectancy/Cost of Living Adjustment
Hispanics gain from a guaranteed benefit that is annually adjusted for inflation. With longer life expectancies, elderly Hispanics will live more years in retirement and benefit from Social Security's cost-of-living protections. Hispanics tend to have higher life expectancies at age 65 than the majority of the population. Hispanic men who were age 65 in 2012 can expect to live to almost age 85, compared to almost age 83 for all men. Hispanic women who were age 65 in 2012 can expect to live to age 89, compared to age 85 for all women. As a result of their higher than average life expectancy, Hispanics gain from the Social Security program’s annual cost-of-living adjustment.
Government Relations and Policy Department, September 2015