Social Security is a “great equalizer” in American society, helping to narrow a yawning wealth gap between Black and Hispanic retirees and white retirees, according to a report from Boston College.
Black and Hispanic Americans — who have long faced discrimination in jobs and housing — rely more heavily on the federal retirement program than do many whites who can also draw on other sources of income, the report said.
The issue brief by BC’s Center for Retirement Research underscored the risk of letting Social Security slide toward insolvency at a time when the program is emerging as a 2020 presidential campaign issue. Last week, Democratic hopefuls Joe Biden and Bernie Sanders sparred over their commitment to Social Security, while President Trump signaled he was open to making unspecified changes to the program.
“As the US population becomes more diverse,” the BC report said, “it will be increasingly important for policy makers addressing Social Security’s solvency to understand the extent to which various racial and ethnic groups rely on Social Security versus other sources of retirement wealth.”
Cutting monthly payments to beneficiaries or raising the age at which seniors are entitled to full benefits — options sometimes proposed to stabilize the fund — would “increase retirement wealth inequality,” the authors warned.
BC’s report, “Social Security is a Great Equalizer,” co-written by BC research fellow Geoffrey Sanzenbacher and senior research adviser Wenliang Hou, is one of the first studies to focus on the racial breakdown of retirement wealth. The brief explores the pivotal role played by Social Security, the 85-year-old program it calls “the most equal and most important form of retirement wealth for minority households.”
There are wide disparities within racial groups, and the authors acknowledge Social Security is just as important to white retirees with little wealth. But the typical white household has accumulated more than double the retirement wealth — including savings, stock investments, and employer-based pension and 401(k) accounts — of the typical Black and Hispanic household, according to the report. Without figuring in the value of Social Security benefits, the gap between racial groups is even more extreme, it said.
“Social Security is the one source of retirement wealth that a lot of people have,” Sanzenbacher said. “So it ends up being more important in replacing [employment] income in retirement for Black and Hispanic workers who might not have other retirement income.”
Drawing on data from the Health and Retirement Study, a biennial survey of US households over age 50 sponsored by the National Institute on Aging, the BC researchers found significant wealth disparities along racial lines among pre-retirees 51 to 56 years old at different income levels and across generations.
The data showed that among these youngest baby boomers, the retirement wealth held by middle-class whites was about seven times that of middle-class Blacks and five times that of middle-class Hispanics. The calculations did not include Social Security payments.
When the Social Security payments were added in, the percentage gap narrowed. Retirement wealth for the white households dropped to about 2.5 times that of minority households. “Social Security has such a powerful effect because the program is nearly universal and its benefit formula is progressive,” meaning that it replaces a higher share of income for lower-paid workers, the BC study said.
That’s particularly important for Black and Hispanic Americans, whose ability to amass wealth and pass it down to the next generation has been undercut by discriminatory attitudes and policies.
Marc Morial, president of the National Urban League, a civil rights and urban advocacy organization, said the racial wealth gap has widened since the 2008 recession, which wiped out huge pools of household savings for Blacks and Hispanic Americans. In recent years, he said, surging housing and other costs have made it tougher to catch up.
“This is another indication of how the racial wealth gap that exists in the nation has a tremendous impact on the quality of life for older African-Americans and Latino Americans,” he said, noting more of the paychecks of employees who are racial minorities goes to basic living expenses. “They haven’t been able to accumulate the stocks, property, bonds, and other investments and savings at the same rate as whites.”
With more employers scrapping pensions and shifting to retirement plans, including 401(k)s, which rely heavily on employee contributions, Social Security has become a vital safety net, Morial said. But he said the US budget deficit, swelled by tax cuts that have mostly benefited upper-income Americans, has left the government retirement security program vulnerable.
For the first time in nearly 40 years, the government program that sends Social Security checks to older Americans will pay out more in benefits in 2020 than it takes in. This will force the program to dip into a rainy day fund that will be depleted in about 15 years. If the fund isn’t recapitalized before then, cuts could be in store for current and future retirees, most of whom haven’t saved enough to retire comfortably.
“The future of the Social Security program is absolutely crucial to the retirement of Black and Hispanic families,” said Russell Williams, chairman of the economics department at Wheaton College in Norton, who teaches a course on the economics of race and racism. “The older generation is now transferring its wealth to a younger generation, and the distribution of that wealth falls along racial lines.”
President Trump promised to preserve the popular Social Security program during his 2016 campaign. But in an interview aired on the financial cable news station CNBC last Wednesday from the World Economic Forum in Davos, Switzerland, heappeared to leave the door open to scaling back on spending for Social Security and Medicare, the federal health insurance program for older Americans.
Asked if he would consider revamping entitlement programs, Trump said, “At the right time, we will take a look at that. You know, that’s actually the easiest of all things, if you look.” A White House spokesman later clarified that the president was referring not to benefit cuts but to removing waste and fraud from the programs.
And in a tweet last Thursday, Trump wrote, “Democrats are going to destroy your Social Security. I have totally left it alone, as promised, and will save it.”
All of the Democratic candidates have called for protecting or expanding Social Security payments. But in the past week, the Sanders and Biden campaigns have clashed over Social Security, with Sanders suggesting Biden had been open to cuts in the past, and Biden saying the Sanders camp had mischaracterized his position.
Few expect lawmakers will take serious steps to stabilize the Social Security fund in the current gridlocked environment. But the issue could take on greater importance as the presidential primaries move to states with larger populations of Black and Hispanic voters, who depend on the program’s benefits as their sole or primary source of retirement income.
“As policy makers begin to consider options to bring Social Security into fiscal balance, it may be worth considering the effect of any potential changes on the distribution of wealth,” the BC issue brief said.