V I E W P O I N T

WHY SOCIAL SECURITY IS IMPORTANT TO AFRICAN AMERICANS

Proponents of privatizing Social Security often claim that certain groups, such as African Americans, would be better off under a privatized Social Security system than they are under today's traditional program. This claim is mostly based on African American's shorter life expectancy. But by focusing on a very narrow element of the Social Security system, these proponents of privatization ignore the broad array of benefits that make Social Security a uniquely valuable program to African Americans.

Summary

Social Security protects workers and their 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 disproportionately rely on Social Security's family benefit features. Social Security provides many elderly African Americans with their sole or primary source of income in retirement. Today's African American workers are concentrated in low-wage jobs that typically lack pension coverage. African Americans experience high poverty and underemployment, and have less ability to save and invest for retirement than most other Americans. Because of low income throughout their working lives, elderly African Americans may not have been able to accumulate savings, and may depend almost exclusively on Social Security for their retirement income. Therefore, preserving the current system with its guaranteed benefits is crucial for African Americans.

African Americans 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 more of their income. Because African Americans tend to have lower earnings and less pension coverage than white Americans, Social Security is extremely important for African-American retirees.

• About three-fourths of African-American beneficiaries rely on social security for at least half their income, compared to two-thirds of all beneficiaries.
  
• Approximately 49 percent of African-Americans beneficiaries rely on Social Security for 90 percent or more of their income.
  
• Approximately 40 percent of African-Americans 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. Few elderly minorities receive income from pensions and assets. The greatest disparity is in the receipt of income from assets.

• In 2004, 29 percent of African Americans received income from private assets, compared with more than 59 percent of whites.
  
• In 2004, 28 percent of African Americans 65 years old and over who had income reported receiving income from pensions, compared to 46 percent of whites 65 years old and older.

The importance of Social Security to minorities is emphasized by the current poverty rates. Social Security reduces minority poverty.

• In 2004, 24 percent of African Americans 65 years old and older were poor, compared to 8 percent of white elderly.
  
• If not for Social Security, the poverty rate for older African Americans would more than double from 24 percent to 56 percent.

Program Features Important to African Americans

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 African Americans. The progressive benefit formula intentionally helps low income earners, many of whom are African American. In the aggregate, African Americans have higher disability rates and lower lifetime earnings, and thus receive greater benefits relative to taxes paid. Furthermore, lower than average life expectancy results in a proportionately higher share of survivor benefits.

Progressive Benefit Formula

Social Security employs a progressive formula that intentionally replaces a higher share of earnings for low- and average-wage earners than for those who have had high earnings. Lifetime earnings directly factor into Social Security's progressive benefit formula. African Americans, on average, have lower levels of lifetime earnings than white workers. About 35 percent of African-American workers born between 1931 and 1940 had lifetime earnings that fell into the bottom fifth of earnings received by workers born in those years. Conversely, only 11 percent of African American workers had earnings that placed them in the highest fifth of workers. The median earnings of working-age African Americans in jobs covered by Social Security in 2006 were about $31,000, compared to $38,000 for all working-age people. In 2006, the average monthly benefit for African Americans receiving retired worker benefits was $894, compared to $1,079 for to all Americans. 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, African Americans gain from Social Security's progressive benefit formula.

Disability

African Americans have higher rates of disability and consequently are more likely to receive benefits from the Social Security Disability Insurance (DI) program. African Americans make up approximately 13 percent of the American population, however, they represent 18 percent of DI beneficiaries. In general, workers with a higher probability of becoming disabled will benefit more from Social Security than those who are less likely to become 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. The higher incidence of disability among African Americans increases the importance of that benefit feature to them.

Because low-wage DI beneficiaries also gain from the program's progressive benefit formula, low-wage, disabled workers benefit from two features of the program. African Americans are disproportionately represented among both disabled workers and low-wage earners. Moreover, it is important to note that DI benefits are paid not only to disabled workers but to the families of such workers as well. African-American children make up 21 percent of the children receiving benefits because a parent is disabled. African American children make up about 15 percent of all children in the country, so they benefit disproportionately from Social Security's DI component.

Life Expectancy

Among workers who live until retirement age, African Americans are expected to receive benefits for fewer years than white or Hispanic retirees because they have shorter life expectancies. While African American workers have a higher probability of dying before retirement and of living fewer years after retirement, their families are more likely, as a consequence, to receive Social Security survivor benefits. In 2005, 21 percent of the children who received Social Security survivor benefits were African- American, although they represented only 15 percent of all children. Furthermore, while it is true that African-American men die at younger ages, they usually die at dramatically younger ages, rather than dying at or just prior to retirement. When African-American and white males reach the age of 65, the actual difference in their life expectancy has decreased to about two years. And because African Americans are more likely to draw an early retirement at the age of 62, the difference in the number of years that African-American and white males receive benefits is further reduced to less than two years.

Privatization

In 2005, President Bush offered a privatization plan which has become the model for other such proposals. The plan would have a devastating effect on Social Security, unraveling the many protections afforded to African Americans and others. It would dismantle the current Social Security program by diverting payroll taxes out of Social Security and into private accounts. The plan would force huge cuts in Social Security benefits, add trillions of dollars to the public debt, and subject individual retirees to the uncertainties of the stock market. In addition to cutting Social Security retirement benefits, the plan would force significant reductions in disability and survivor benefits. This would leave African Americans, who benefit disproportionately from these features, with even less protection.

Government Relations and Policy Department, August 2008