V I E W P O I N T

Why Social Security is Important to Hispanic and Latino Americans

Proponents of privatizing Social Security often claim that certain groups, such as Hispanic Americans, would be better off under a privatized Social Security system than they are under today's traditional program. By focusing on very narrow elements of the Social Security system, these proponents of privatization ignore the broad array of benefits that make Social Security a uniquely valuable program for Hispanic 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 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 income 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 current system with its 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 more of their income. Because Hispanics tend to have lower earnings and less pension coverage than white Americans, Social Security is extremely important for Hispanic retirees.

• Over three-fourths of Hispanic beneficiaries rely on Social Security for at least half their income, compared to two-thirds of all beneficiaries.
  
• Approximately 51 percent of Hispanic beneficiaries rely on Social Security for 90 percent or more of their income.
  
• Approximately 43 percent 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. Few elderly minorities receive income from pensions and assets. The greatest disparity is in the receipt of income from assets.

• In 2004, 23 percent of Hispanic Americans received income from private assets, compared with more than 59 percent of whites.
  
• In 2004, 20 percent of Hispanics 65 years old and over, who had income, reported receiving income from pensions, compared to 46 percent of whites 65 years old and older.

Elderly Latinos are more dependent on Social Security than others, because they are more likely to be 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 2004, 20 percent of Hispanic elderly 65 years old and older were poor, compared to 8 percent of white elderly.
  
• If not for Social Security, the poverty rate for older Hispanic Americans would more than double from 20 percent to 50 percent.

Program Features Important 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 significant benefit from these Social Security protections. Furthermore, due to higher than average life expectancy, Hispanics benefit from the Social Security program's annual cost-of-living adjustment.

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. Hispanics, on average, have lower levels of lifetime earnings than white workers. For example, 38 percent of Hispanic workers born between 1931 and 1940 had lifetime earnings that fell into the bottom fifth of earnings received by workers born in these years. Conversely, only 9 percent of Hispanic workers had earnings that placed them in the highest fifth of workers. The median earnings of working-age Hispanics in jobs covered by Social Security in 2006 were about $26,282, compared to $38,000 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, Hispanic Americans gain from Social Security's progressive benefit formula.

Disability

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 will benefit more from Social Security 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 the importance of that Social Security feature to them. Moreover, 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. 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 benefit from the 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 are age 65 in 2005 can expect to live to age 85, compared to age 81 for all men. Hispanic women who are age 65 in 2005 can expect to live to age 88, compared to age 85 for all women. As a result of their higher than average life expectancy, Hispanics benefit from the Social Security program's annual cost-of-living adjustment.

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, August 2008