The Social Security system serves as a safety net program, a retirement program, and an insurance program. It assists the young as well as the old. As a safety net, it lifted over 11 million people out of poverty in 1997, including over seven million elderly women, 812,000 African Americans, and 433,000 Hispanic Americans. Since these communities have a lower rate of pension coverage and are disproportionately represented among low-wage workers - making it more difficult to set aside income for retirement - Social Security provides a guaranteed retirement income. In 1997, Social Security made up 61 percent of the average income for women age 65 and older, 43 percent for elderly African Americans, and 41 percent for elderly Hispanic Americans. The survivors and disability programs provide insurance for workers and their families at all ages. In fact, about one-third of all Social Security beneficiaries receive benefits as a result of the survivors or disability insurance program components. The Social Security Administration indicates that approximately one in six people age 20 today will die before retirement and about three in ten will become disabled. Thus, Social Security is not only a mechanism by which young, working people can take care of their parents and other elders, it is a mechanism by which young people can take care of themselves, their spouses and their children should death or disability occur.
Because Social Security is a comprehensive insurance program, it provides protections for workers and families of workers with shorter than average life spans. African Americans, like Native American men, have a lower life expectancy than whites. As I indicated in my position paper for this dialogue, the argument that Social Security provides a lower rate of return to African Americans due to our lower than average life expectancy overlooks the features of Social Security that help mitigate the effects of a shorter life span.
* First, Social Security's benefit formula is progressive. Individuals who earned lower wages and/or had fewer years in the workforce receive larger monthly benefit amounts, in proportion to the wages they earned and the taxes they paid, than other workers do. Since African Americans are disproportionately represented among low-wage earners, they gain from this formula.
* The second feature is the option for early retirement. Two thirds of all workers, including people of color, retire between ages 62 and 65. Given the shorter life span for African Americans, the benefits these early retirees receive from age 62 to the end of their lives exceed the benefits they would receive, as a group, if they waited until 65 to retire. Starting to receive benefits several years earlier increases the total benefits they receive and raises their average rate of return.
* The third component is the comprehensive nature of the program. African Americans benefit disproportionately from the disability and survivors components of Social Security. While African Americans account for 11 percent of the civilian labor force, we comprise about 18 percent of workers receiving Social Security disability benefits in 1996. African American children made up 23 percent of the children of workers receiving disability benefits. This is not surprising since African Americans are disproportionately represented among low-wage workers and low-wage jobs are often physically arduous and carry greater risk of injury.
Finally, as a result of the above-average mortality rates among African Americans, the African-American community benefits disproportionately from the feature of Social Security that provides benefits to non-elderly survivors. Although African-American children comprise about 16 percent of all children in the country, they made up 24 percent of the children receiving survivors benefits in 1996.
Despite the shorter life span of African Americans, aspects of the programs such as the progressive benefit, early retirement and comprehensive insurance, help offset the effects of higher mortality rates for this community. A study of Social Security's rate of return conducted by researchers at the Treasury Department (Duggan, Gillingham and Greenlees) found that African Americans had a slightly higher rate of return from Social Security retirees and survivors benefits than whites. A second study by the Social Security Administration looked specifically at disability insurance. It shows that African Americans received substantially more benefits from Social Security Disability Insurance in relation to the payroll taxes they have paid than whites do. (Data on Native Americans is not as readily available, however, the design of the Social Security program should help to compensate men in this community for the lower life expectancy.)
Social Security was designed to be a societal program not just an individual retirement savings program. It covers workers during their younger years and when they retire. It provides for the spouses and children of workers in addition to workers' parents. Social Security is an intergenerational compact whereby younger workers contribute payroll taxes to pay for the benefits of the elderly in exchange for the government's assurance that current workers will receive benefits from the payroll taxes of future generations. Reforms made to Social Security should ensure that the safety net, savings and insurance components of the program are protected. But we must remember that the retirement benefits and the survivors and disability insurance provided by Social Security are intended to be an income floor. Social Security was not designed to be an complete retirement system. In addition to Social Security, personal savings and pensions are needed to move retirees above a basic level of income. We also must remember that Social Security may not provide sufficient income for some workers who have low wages and have spent a substantial amount of time out of the labor market. In these cases, the Supplemental Security Income program can serves as an additional safety net. Social Security should not be expected to make up for pension benefits and savings, but it is an essential, universal source of income that should remain a guaranteed benefit.
