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Any decisions made regarding Social Security need to consider the changing diversity of the U.S. and the greater impact that the safety net program has on minorities and those with low to middle incomes.
So says a new brief from the Center for Retirement Research at Boston College, which analyzed data from the Health and Retirement Study to see just how much Social Security affected the retirement wealth of whites, blacks and Hispanics during 1992–2016.
The disparity between typical white households and minority households when it comes to retirement funds is shockingly large without Social Security, with the former having 5–7 times the funds of the latter. However, when Social Security is added into the equation, the gap falls to 2–3 times.
When one considers that the wealth calculation, without Social Security, includes such sources as defined benefit plans (pensions), defined contribution plans (401(k)s), housing wealth and any other wealth not resulting from a retirement plan—stocks, bonds, mutual funds and other investments, as well as checking and savings account balances—the fact that Social Security alone, with its progressive benefits, can cut that gap so substantially really drives home how important the program is to those it was devised to help: people without, or without much, retirement savings.
It works pretty much the same way for lower- and middle-income households compared to those at the high end of the income chain, since, as the brief says, "Social Security reduces inequality because it covers nearly all workers and has a progressive benefit design, making it the most equal form of retirement wealth."
The report concludes that policymakers need to consider this outsized effect on the lower-income and minority segments of the population, since the outsized effect of Social Security in equalizing retirees' income will have an equally outsized effect if any changes that reduce benefits—such as increases in the Full Retirement Age—are considered. What they will do, instead of solving any fiscal problems with Social Security, says the report, "would tend to increase retirement wealth inequality."
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Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
