Social Security Helps Minority Households Overcome Wealth Disadvantage

      From Alicia Munnell, published in Market Watch:

A forthcoming study by two of my colleagues, Wenliang Hou and Geoff Sanzenbacher, looks at retirement wealth by race. ...

The results are shown in the table below. Without Social Security, the wealth of white households was seven times that of black households and five times that of Hispanic households. Add in Social Security and the disparity for both black and Hispanic households is reduced to 2 to 1. 

 

The reason that Social Security has such a powerful effect is that the program is universal and its benefit formula is progressive. A universal program allows minority workers to build up credits as they move from job to job. This constancy differs from employer-sponsored retirement plans, where minorities often work for employers that do not provide coverage. A progressive benefit formula provides much higher benefits relative to earnings for low-wage workers than for their high-wage counterparts. Since blacks and Hispanics earn significantly less than white workers, they receive a much higher percentage of their preretirement earnings in Social Security benefits.  ...