Social Security plays an exceptionally important role in the economic life of African Americans:
• Social Security is the main source of retirement income for most elderly African Americans, and the only source for 40 percent.
• African American workers, because they have lower average wages, receive a higher portion of their wages when they retire. Low-wage workers retire with 56 percent of their pay, compared to 36 percent to 42 percent for average workers, and 30 percent for top earners.
• Compared with white workers, African Americans are about twice as likely to receive disability benefits from Social Security, and their families are 20 percent more likely to receive survivors’ benefits.
The Bush administration is trying to persuade skeptical African Americans to support its plan. Their main tactic is to talk about problems (real or imaginary) with Social Security — then to propose “solutions” that will make the situation worse.
Claim: “African American males die sooner than other males do, which means the system is inherently unfair.” (President Bush, Jan. 25). In other words, Blacks don’t live long enough to collect a fair share of the benefits.
Answer: Paul Krugman, writing in The New York Times (Jan. 28), points out that it is in childhood and young adulthood that African American men have a high death rate, before they have a chance to either collect or contribute substantially to Social Security. The real problem is not the rate of return, but the lower lifespan, which Bush does not seem to care about. Krugman says, “African American men who make it to age 65 can expect to live, and collect benefits, for an additional 14.6 years.” While this is two years less than for white men, the Bush proposal will do nothing to increase the lifespan of African Americans. Krugman quotes the chief actuary of the Social Security Administration: “[C]areful research reflecting actual work histories for workers by race indicate that the nonwhite population actually enjoys the same or better rate of return from Social Security” as whites..
Claim: Social Security results in a net transfer of wealth out of the Black community.
Answer: African Americans pay about 9 percent of the payroll taxes that finance Social Security, according to William Spriggs of the Economic Policy Institute. And they receive about 9 percent of all benefits, including retirement, disability and survivors. That doesn’t sound like a transfer of wealth to me.
Claim: African American households typically accumulate little wealth. With private retirement accounts, African Americans will accumulate substantial nest eggs to pass on to their children.
Answer: When you retire, the Bush plan apparently requires the bulk of the “nest egg” to be converted to an annuity, leaving little for your heirs even if you die immediately. If you live more than a few years after retirement, the remaining nest egg will quickly be spent to supplement your meager pension. If you die before you retire, it is likely that anything your spouse and children get from your retirement account will be offset by reductions in their survivors’ benefits. It is still unclear what happens to your retirement account if you lose your job, have big medical expenses, become homeless, or go bankrupt. There will be incredible pressure to allow the funds to be used to meet emergency expenses.
Claim: Elderly African Americans are more likely to depend entirely on Social Security, and more likely to live in poverty. Private accounts will fix this.
Answer: The first part is true. Social Security provides a safety net, but it is inadequate. However, the Bush proposal will result in cuts of about 36 percent for workers retiring in 2045. It will undoubtedly involve similar cuts for those receiving disability or survivors’ benefits. Sounds like the cure is worse than the disease!
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African Americans suffer great inequality in both health and income. When it comes to retirement, disability, and survivors’ benefits, the inequality is less. That is because Social Security is a progressive part of the safety net — it gives relatively better benefits to those with low incomes.
President Bush has joined those who are trying to blame Social Security for injustices rooted in the institutional racism that pervades the country. The administration’s proposals would result in lower benefits for everyone. But African Americans would be hurt especially hard, because the progressive benefit structure of Social Security would be absent from private accounts.