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 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
Out of 37.8 million beneficiaries aged 65 and older in 2014, 3.3 million (or 8.7 percent) were African Americans. While Social Security is expected to be only one part of a person’s retirement income, many people of color 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. Based on the most recently available data:
- Almost 70 percent of African-American beneficiaries rely on Social Security for at least half their income, compared to 6l percent of all beneficiaries.
- Over 45 percent of African-American beneficiaries rely on Social Security for 90% or more of their income.
- Approximately 33 percent of African-American 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. Fewer elderly minorities receive income from pensions and assets. The greatest disparity is in the receipt of income from assets. Again, based on the most recent data,
- 39 percent of African Americans received income from assets, compared with more than 65 percent of whites.
- 30 percent of African Americans 65 years old and over reported receiving income from private pensions or annuities, compared to 47 percent of whites 65 years old and older.
The importance of Social Security to communities of color is emphasized by the current poverty rates. As the numbers show, Social Security substantially reduces minority poverty. With Social Security, the poverty rate for older African Americans is 18 percent. But if they did not receive Social Security, 51 percent of African American seniors would live in poverty.
PROGRAM ASPECTS 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 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. African Americans, on average, have lower levels of lifetime earnings than white workers.
Thirty-five 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 these 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 who worked full-time, year-round in jobs covered by Social Security in 2014 were about $36,000, compared to $44,000 for all working-age people.
In 2014, the average annual benefit for African Americans receiving retired worker benefits was $14,672 for men and $12,640 for women, compared to $17,106 for all men and $13,150 for all women. 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.
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 12 percent of the American population; however, they represent 20 percent of DI beneficiaries. 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. The higher incidence of disability among African Americans increases their benefit-to-tax ratio.
Because low-wage DI beneficiaries also gain from the program’s progressive benefits formula, low-wage, disabled workers benefit from two aspects 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 receiving benefits because a parent is disabled represent a larger share of children receiving benefits than their percentage representation in the population at large, so they benefit disproportionately from Social Security’s DI component.
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.
The percentage of African American children who received Social Security survivor benefits is higher than their percentage representation in the population 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 take 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.
IMPROVING SOCIAL SECURITY IS ESSENTIAL
As we have shown, Social Security is our nation’s most important and effective income security for American workers, retirees and their families. Social Security is even more central to the economic security of African Americans. Maintaining the adequacy of Social Security by improving it so that it can better meet the needs of America’s seniors is essential. Toward that end, the National Committee supports a number of improvements to boost Social Security, including the following:
· Strengthen the COLA. Future Cost-of-living adjustments (COLAs) should be based on a fully developed Consumer Price Index for the Elderly (CPI-E). Such an index would more accurately measure the effects of inflation on the goods and services purchased by seniors than does the current index, which is not based on seniors’ purchasing and consumption patterns.
· Improve the Basic Benefit for all Current and Future Beneficiaries. After years of operating under a COLA which doesn’t reflect their spending patterns, seniors need to have their rising costs offset by an across-the-board benefit increase.
Enhance the Special Minimum Benefit. The “Special Minimum Benefit” is intended to provide a more generous benefit to individuals who work for many years in lower-wage employment. This benefit should be updated so that more people can qualify for it, and the benefit level should be increased substantially.
Restore Student Benefits. Social Security pays benefits to children of working parents who have died, become disabled or retired. Benefits continue to be paid until age 18, or 19 if they are still attending high school. In the past, benefits for students continued until age 22 if the student attended a college or vocational school on a full-time basis. Restoring these benefits will help those who are having a hard time saving for their retirement because they are also helping their children reach their educational goals.
SOCIAL SECURITY DATA BASED ON RACE/ETHNICITY
From the earliest days of the Social Security program, the Social Security Administration has published each year information regarding Social Security beneficiaries based on their race and ethnicity. Unfortunately, this practice was abandoned in 2010, leaving a very serious gap in our understanding of how this vitally important program affects African Americans, Hispanics and other racial and ethnic groups.
The National Committee believes it is essential that contemporaneous programmatic data based on race and ethnicity be gathered and published by the SSA. As advocates for Social Security, we believe that knowing how Social Security serves minority populations is essential to defending the program from those who want to attack it as well as ensuring that the program serves our entire community as was intended. We urge the SSA to resume publication of Social Security data that is specific to minority communities at the earliest opportunity.
Government Relations and Policy Department November 2017