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
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.
- Almost three-fourths (74%) of African-American beneficiaries rely on Social Security for at least half their income, compared to less than two-thirds (65%) of all beneficiaries.
- Almost 50% of African-American beneficiaries rely on Social Security for 90% or more of their income.
- Approximately 42% 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. Few elderly minorities receive income from pensions and assets. The greatest disparity is in the receipt of income from assets.
- In 2010, 25% of African Americans received income from assets, compared with more than 56% of Whites
- In 2010, 20% of African Americans 65 years old and over reported receiving income from private pensions or annuities, compared to 28% 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 2010, 18% of African Americans 65 years old and older were poor, compared to 8% of White elderly.
- If not for Social Security, the poverty rate for older African Americans would more than double to 53%.
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 2010 were about $35,000, compared to $41,500 for all working-age people. In 2010, the average annual benefit for African Americans receiving retired worker benefits was $13,617, compared to $14,122 for all working-age 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.
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 12.6 percent of the American population; however, they represent 18 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 benefit 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 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.
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 2010, 23 percent of the children who received Social Security survivor benefits were African American, though representing 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.
Government Relations and Policy Department, September 2012