MARCH 2016 Insight on the Issues Social Security: A Key Retirement Income Source for Older Minorities Mikki Waid AARP Public Policy Institute 99Social Security is the primary source of retirement income for older minorities. Eighty- two percent of African Americans, 75 percent of Hispanics, and 69 percent of Asians, ages 65 and older, depend on it for part of their family income. 99Nearly one-third of older African Americans and Hispanics in families that receive Social Security rely on it for more than 90 percent of their family income. 99Social Security keeps approximately 30 percent of older African Americans and Hispanics and 20 percent of older Asians out of poverty. Nonetheless, high poverty rates persist among these groups. As the minority population in the United States Social Security has a funding shortfall and grows,1 it becomes even more important to changes to the program to address that shortfall understand which factors will affect the economic could undermine the retirement security of older well-being of minorities in retirement. This paper minorities who are more reliant on the program’s examines differences by race, ethnicity, and nativity income. In 2034, when the assets in the Social of three main sources of income of older Americans Security trust funds will become depleted, only (age 65 and older): Social Security, pensions and about 80 percent of benefits can be paid—primarily retirement savings, and assets. from revenue obtained from payroll taxes. Social Security is the bedrock of retirement SOCIAL SECURITY IS AN IMPORTANT SOURCE OF security for older Americans, but it is particularly RETIREMENT INCOME FOR OLDER MINORITIES important for minorities who have fewer sources Older Minorities Are Less Likely than Whites to of other income. In 2014, 7.4 million older minority Receive Social Security and Even Less Likely to Americans (3.3 million African Americans, Receive Other Sources of Retirement Income 2.7 million Hispanics, and 1.4 million Asians) Nearly 90 percent of older whites live in families relied on Social Security for at least part of the that receive Social Security benefits (see figure 1). income that they and their families received (see In contrast, only about 82 percent of older African Methodological Note at end). Americans, 75 percent of older Hispanics, and 69 percent of older Asians include Social Security as part of the income received in their families. MARCH 2016 FIGURE 1 Family Income Sources of Older Americans, by Race and Ethnicity, 2014 Social Security Pensions and Retirement Savings Assets 86.0 88.6 82.1 Percentage of Persons 72.3 74.8 67.1 68.8 63.3 65 and Older 52.9 47.7 45.7 43.3 34.0 29.5 23.2 Total White African American Hispanic Asian Source: Author’s tabulations of US Census Bureau, “Current Population Survey,” March 2015. Fewer older minorities receive income from family income. Nearly one-third of older African pensions, retirement savings, or assets than Americans (33 percent) and Hispanics (31 percent) whites. Roughly one-third of African Americans who live in families that receive benefits rely on (34 percent) and Asians (30 percent) and nearly a Social Security for at least 90 percent of the income quarter of Hispanics (23 percent) live in families that their family receives (see figure 5). Social that receive income from pensions or retirement Security is not only vitally important to older accounts. However, nearly two-thirds of older minorities but also to their families. Asians (63 percent) and two out of five African Although Social Security Helps Keep Older Americans (46 percent) and Hispanics (43 percent) Minorities Out of Poverty, Their Poverty Rates Are live in families that receive asset income2 (figure 1). Higher Older minorities have fewer sources of retirement Social Security is important to keeping all income than whites at all income levels individuals, regardless of race, out of poverty. (figures 2–4). Social Security is the one source of In 2014, Social Security benefits lifted roughly income that is most universally held by all races, 33 percent of older whites out of poverty, along regardless of income level. The widest gap, however, with about a third of older African Americans occurs for pension and retirement savings, because (32 percent) and Hispanics (29 percent) and one- minorities are less likely to work full time and have fifth of Asians (19 percent). Poverty rates for older an employer that provides a pension (figure 3). minorities, however, are still much higher than Older Minorities Rely on Social Security for More those for older whites. In 2014, 19 percent of older of Their Family Income African Americans and 18 percent of Hispanics Older minorities are less likely to live in a family lived in poverty (see figure 6)—more than double that receives any Social Security income, but for the rate for whites (8 percent). African Americans and Hispanics who do, Social The difference in the proportion of older minorities Security makes up a significant share of their and older whites kept out of poverty by Social 2 MARCH 2016 FIGURE 2 Social Security as a Family Income Source for Older Americans, by Race, Ethnicity, and Income Quintile, 2014 White African American Hispanic Asian 94.8 93.4 Percentage of Persons 88.4 87.5 89.8 82.5 84.5 83.7 83.3 75.8 75.5 78.0 76.3 73.2 71.5 73.1 70.7 65 and Older 69.0 69.7 58.5 Lowest Second Third Fourth Highest Income Quintile Source: Author’s tabulations of US Census Bureau, “Current Population Survey,” March 2015. FIGURE 3 Pensions and Retirement Savings as a Family Income Source for Older Americans, by Race, Ethnicity, and Income Quintile, 2014 White African American Hispanic Asian Percentage of Persons 68.6 66.1 65 and Older 64.5 59.9 48.2 50.3 41.4 43.4 37.2 37.2 39.6 33.6 27.7 24.4 14.9 17.8 15.4 10.7 6.2 6.7 Lowest Second Third Fourth Highest Income Quintile Source: Author’s tabulations of US Census Bureau, “Current Population Survey,” March 2015. 3 MARCH 2016 FIGURE 4 Assets as a Family Income Source for Older Americans, by Race, Ethnicity, and Income Quintile, 2014 White African American Hispanic Asian 90.0 88.8 81.8 80.9 Percentage of Persons 74.8 76.1 65.7 65.7 65 and Older 61.8 63.2 57.6 52.3 44.4 44.7 35.3 37.8 36.9 30.8 23.6 20.0 Lowest Second Third Fourth Highest Income Quintile Source: Author’s tabulations of US Census Bureau, “Current Population Survey,” March 2015. Security reflects two factors. First, as previously LOWER LIFETIME EARNINGS AND HIGHER discussed, older minorities are less likely to receive DISABILITY RATES HAVE IMPORTANT EFFECTS ON Social Security income. Second, as discussed MINORITIES’ SOCIAL SECURITY BENEFITS below, even among those who do receive Social Lower wages combined with fewer years of Security, the typical benefit that minorities receive employment and higher disability rates negatively is less than that of whites because of lower lifetime affect lifetime earnings, the basis for determining earnings. Social Security benefits, and therefore the amount of benefits minorities receive. DESPITE THEIR GREATER RELIANCE ON SOCIAL SECURITY, OLDER MINORITIES RECEIVE LESS TABLE 1 SOCIAL SECURITY INCOME Median Family Income from Social Security for The typical older African American family Older Americans in Beneficiary Families, 2014 receives annual Social Security benefits of $15,600, compared with $16,020 for the typical older Median Hispanic family; both figures are about 24 percent Race/Ethnicity Social Security Income lower than what the typical older white family White $21,117 receives ($21,117). For the typical Asian family, the African American $15,600 gap is about 15 percent ($18,024; see table 1). Hispanic $16,020 Even at higher family income levels, older minorities’ Social Security income lags behind that of older Asian $18,024 whites. The median annual Social Security income Source: Author’s tabulations of US Census Bureau, received by a family with an older minority and who “Current Population Survey,” March 2015. receives Social Security is lower at almost all income quintiles than that of white families3,4 (see figure 7). 4 MARCH 2016 Minorities Tend to Earn Less FIGURE 5 As shown in figure 8, a higher percentage of Older Minorities Rely on Social Security working African Americans and Hispanics than for a Significant Share of Family Income, whites and Asians, ages 25 to 64, have earnings in Beneficiaries Only, 2014 the bottom quintile.5,6 Median annual earnings of working African Americans are 71 percent of those 90 to 100 Percent 50 to 89.9 Percent of whites. Hispanic median earnings are 66 percent Less than 50 Percent of white median earnings, and median earnings for working Asians are similar to (and slightly greater than) those of whites.7 Minorities’ lower average lifetime earnings result in 42.8 Percentage of Persons 48.2 48.2 48.5 lower Social Security benefits. As shown in table 2, 59.2 65 and Older the median Social Security benefit (based on the person’s own earnings) for white beneficiaries in 2014 was $14,939; this figure is about 17 percent 24.7 20.3 27.1 28.3 higher than the amount for the typical older Asian 18.7 who received Social Security benefits, 18 percent higher than the typical older African American 32.5 31.2 24.7 23.5 22.1 beneficiary, and 23 percent higher than the typical Hispanic beneficiary. Total White African Hispanic Asian American TABLE 2 Median Own Social Security Income of Older Note: Family income includes income from all family Beneficiaries, 2014 members, including those in related subfamilies; persons with zero family income, negative family income, negative family earnings, or negative family asset income are Median Own Race/Ethnicity Social Security Income excluded. Only individuals with positive family Social Security income are included. White $14,939 Source: Author’s tabulations of US Census Bureau, African American $12,320 “Current Population Survey,” March 2015. Hispanic $11,459 Asian $12,454 Another study finds that while government Source: Author’s tabulations of US Census Bureau, transfers offset some of disability’s negative effect “Current Population Survey,” March 2015. on income, the disabled still face lower incomes and Note: Includes only individuals with positive own Social higher poverty rates than the nondisabled do.11 Security income. IMMIGRATION HAS A NEGATIVE EFFECT ON RETIREMENT INCOME DISABILITY HAS A NEGATIVE EFFECT ON For the older Asian and Hispanic populations, MINORITIES’ LIFETIME EARNINGS Minorities, particularly African Americans and immigration is another key factor that drives down Hispanics, have higher disability rates than whites families’ Social Security income. About 53 percent in the ages leading up to retirement.8 Studies of older Hispanics and 80 percent of older Asians suggest that minorities’ higher rates of disability are either naturalized citizens or immigrants.12 In are also linked to lower employment rates, which contrast, only 5 percent of older whites and 9 percent negatively affect lifetime earnings.9 One study finds of older African Americans are foreign-born. that minorities with disabilities experience larger It is important to note that undocumented decreases in employment rates than whites do.10 immigrants are not eligible for Social Security 5 MARCH 2016 benefits, but even legally present immigrants may FIGURE 6 not have enough reported years of work to be Poverty Rates Are Higher for Older Minorities, eligible.13 For naturalized citizens and immigrants 2014 who are eligible for benefits, a shorter history of Above Poverty US earnings drives down their level of retirement Above Poverty because of Social Security benefits received (see table 3). BelowPoverty TABLE 3 Median Own Social Security Income of Older Foreign-Born Beneficiaries, by Years in the Percentage of Persons United States, 2014 49.3 53.3 58.5 59.7 66.1 65 and Older Median Own Social Year of Entry Security Income 63 years or more $15,576 31.6 28.6 53 to 62 years $13,200 31.5 32.5 19.4 43 to 52 years $13,259 19.1 18.1 14.5 31 to 42 years $12,000 10.0 7.8 21 to 30 years $10,800 Total White African Hispanic Asian 11 to 20 years $9,659 American Source: Author’s tabulations of US Census Bureau, Source: Author’s tabulations of US Census Bureau, “Current Population Survey,” March 2015. “Current Population Survey,” March 2015. OLDER FOREIGN-BORN PEOPLE ARE LESS LIKELY THAN OLDER NATIVE-BORN CITIZENS TO RECEIVE Naturalized citizens receive somewhat lower Social ANY SOCIAL SECURITY BENEFITS Security benefits than native-born citizens do, and Naturalized citizens and immigrants14 ages 65 and immigrants’ benefits are generally much lower older are less likely than their native-born peers to (except among whites). With the exception of Asian live in a family that receives any of the three major citizens, older minorities have a lower median sources of retirement income (figure 9). benefit, whether they are native-born, naturalized citizens, or immigrants. In addition to citizenship status, the number of years lived in the United States also has a THE PROGRESSIVITY OF THE SOCIAL SECURITY significant effect on the likelihood of receiving BENEFIT FORMULA BOOSTS THE BENEFITS OF one of the major sources of retirement income. As OLDER MINORITIES shown in figure 10, older people who have been in The progressivity of the Social Security benefit the United States the longest are much more likely formula means that while benefits increase with to have family income from Social Security, assets, lifetime earnings (up to a cap), Social Security or pensions and retirement savings than those who replaces a higher share of average lifetime earnings have been in the United States for fewer years. for low lifetime earners than for higher lifetime Social Security income for the typical minority family earners. As a result, minorities, who tend to have is less than that of older whites, but the median lower lifetime earnings, have Social Security benefit for foreign-born minorities and their families benefits that replace a higher share of their average is even lower. For older foreign-born minorities who career earnings than non-Hispanic whites. live in families that receive Social Security income, For example, one study found that the median median annual Social Security income lags behind share of taxable earnings replaced was 30 percent that of older native-born citizens (see table 4). for whites, 37 percent for African Americans, 6 MARCH 2016 FIGURE 7 Median Family Social Security Income for Older Minorities Is Lower at All Income Quintiles, Beneficiary Families Only, 2014 White African American Hispanic Asian $30,000 Median Social Security Income $25,000 $20,000 $15,000 $10,000 $5,000 $0 Lowest Second Third Fourth Highest Income Quintile Source: Author’s tabulations of US Census Bureau, “Current Population Survey,” March 2015. 38 percent for Hispanics, and 34 percent for Asians. programs could alleviate poverty and income However, whites still receive more Social Security insecurity among all older Americans. benefits over their lifetimes because they have More can be done to boost the benefits of older higher lifetime earnings (which results in higher minorities. For example, an enhanced minimum benefits) and live longer on average.15 benefit for Social Security that would target workers CONCLUSION with long careers and low lifetime earnings would Social Security is and will continue to be the increase the Social Security benefits of some main source of income for low- and moderate- low-income retirees, including many minorities. wage retirees, many of whom are older minorities, By tying an enhanced benefit to years of work, but improvements to Social Security and other minimum benefit proposals would ensure the adequacy of benefits received by low-wage workers TABLE 4 Median Family Social Security Income by Race and Ethnicity and Nativity, Older People in Beneficiary Families, 2014 African Nativity All White American Hispanic Asian Citizen $20,459 $21,288 $15,600 $17,315 $18,910 Naturalized Citizen $18,000 $19,248 $14,664 $15,179 $19,200 Immigrant $15,598 $19,200 $10,463 $13,896 $15,720 Source: Author’s tabulations of US Census Bureau, “Current Population Survey,” March 2015. 7 MARCH 2016 FIGURE 8 FIGURE 9 More Working Minorities Have Earnings in the Older Foreign-Born People Are Less Likely to Bottom Quintiles, 2014 Live in a Family That Has Any of the Three Major Sources of Retirement Income, 2014 White African American Social Security Hispanic Pensions and Retirement Savings Asian Assets Percentage of Persons 88.2 65 and Older 75.7 68.9 Percentage of Persons 58.1 59.4 65 and Older 50.7 28.1 28.4 46.8 24.0 23.6 16.8 17.4 12.0 9.3 31.0 15.5 Lowest Highest Quintile Source: Author’s tabulations of US Census Bureau, Citizen Naturalized Immigrant “Current Population Survey,” March 2015. Citizen Note: Earnings quintiles are calculated for workers ages 25 Source: Author’s tabulations of US Census Bureau, to 64 with positive earnings. “Current Population Survey,” March 2015. FIGURE 10 Years in the United States Affect Probability of an Older Foreign-Born Person Living in a Family that Receives Social Security and Other Sources of Income, 2014 Pensions and Retirement Savings Assets Social Security 88.0 85.9 82.1 Percentage of Persons 75.1 65.2 68.0 65 and Older 63.4 59.6 56.1 55.9 51.2 49.0 46.5 44.6 42.5 44.1 38.6 27.1 15.8 14.7 12.7 63 or more 53–62 43–52 31–42 21–30 11–20 10 or fewer Years in the United States Source: Author’s tabulations of US Census Bureau, “Current Population Survey,” March 2015. 8 MARCH 2016 and reward their years of work. Minimum benefit proposals that also include credits for time out Methodological Notes of the labor force for caregiving, unemployment, or poor health also would boost the benefits of Unless otherwise noted, the tables and figures minority groups.16 in this report show the family income of older individuals. Family income is used because it Reforming the Supplemental Security Income (SSI) is a better measure of the resources available program—a means-tested, federally administered to older people and their economic well- income assistance program for needy older, blind, being. It is also the income measure used for and disabled persons—could mitigate hardship determining poverty. for many vulnerable older Americans. Reforms to SSI could include increasing the benefit to bring Family income includes any income received by related people living with an individual who beneficiaries up to the poverty level, relaxing the is 65 or older. The characteristic on which the asset test, eliminating the reduction in benefits for information is displayed is at the individual older people who live with others, and restoring level. benefits for legal immigrants. This report uses self-identified racial and Increasing retirement savings is another avenue ethnic designations. Designations are exclusive to improving the retirement security of older in this report—Hispanics may be of any race, minorities. For example, requiring employers but all whites, African Americans, and Asians without a retirement plan to implement a payroll are non-Hispanic. deduction automatic Individual Retirement Account While American Indians and Alaska Natives would help minorities—particularly Hispanic (AIANs) also are considered minorities, they workers, who are much less likely than whites are not included in this report because of data to have access to employer-sponsored retirement limitations. The number of AIANs ages 65 and plan—to save for their own retirement.17 Also, older included in the Current Population Survey reforming the Saver’s Credit would increase the is not sufficient to produce reliable estimates incentive for minorities to save for retirement. for all the tables and figures in this report. For 2014, the median family Social Security income for older AIANs was $16,049 (AARP Public Policy Institute tabulations of US Bureau of the Census, Current Population Survey, March 2015). 9 MARCH 2016 1 Sandra L. Colby and Jennifer M. Ortman, Projections of the 16Melissa M. Favreault, A New Minimum Benefit for Low Size and Composition of the U.S. Population: 2014 to 2060 Lifetime Earners (Washington, DC: Urban Institute, March (Washington, DC: US Bureau of the Census, March 2015). 2009); Peter A. Diamond and Peter R. Orszag, “Reforming Social Security: A Balanced Plan,” Policy Brief No. 126, 2 Throughout this report, asset income includes interest Brookings Institution, Washington, DC, December 2003. income, dividend income, rental income, royalties, estates or trusts, other public assistance, and state disability payments 17Ariel Investments and Hewitt Associates, 401(k) Plans in Living (worker’s compensation). Color: A Study of 401(k) Savings Disparities Across Racial and Ethnic Groups 2012), http://www.arielinvestments.com/ 3 At the median, in the second income quintile, Hispanics and images/stories/PDF/ariel-aonhewitt-2012.pdf; Yung-Ping Asians have greater Social Security income than do white Chen and Thomas D. Leavitt, Employee Preferences as a families. However, the sample sizes of both groups are much Factor in Pension Participation by Minority Workers (Boston, smaller and are thus subject to greater measurement error. MA: University of Massachusetts, 2009), 4 Income quintiles for figure 7 are calculated for the total http://www.mccormack.umb.edu/centers/gerontology population ages 65 and older. institute/pubAndStudies/DOLreport.pdf; Lisa Southworth and John Gist, The Saver’s Credit: What Does It Do for Saving? 5 Includes all people ages 25 to 64 with positive earnings in (Washington, DC: AARP Public Policy Institute, 2008), 2011. http://www.aarp.org/ money/taxes/info-02-2008/ 6 Earnings deciles are calculated for the total working i1_credit.html. population. 7 AARP Public Policy Institute tabulations of US Bureau of the Census, “Current Population Survey,” March 2013. 8 Laura Trupin, Douglas S. Sebesta, and Edward Yelin, Transitions in Employment and Disability among People Ages 51 to 61 (Washington, DC: National Institute on Disability and Rehabilitation Research, August 2000); Richard W. Johnson, Melissa M. Favreault, and Corina Mommaerts, “Work Ability and the Social Insurance Safety Net in the Years Prior to Retirement,” Discussion Paper 10-01, Urban Institute, Washington, DC, January 2010. 9 John Bound, Timothy Waidmann, Michael Schoenbaum, and Jeffrey B. Bingenheimer, “The Labor Market Consequences of Race Differences in Health,” Milbank Quarterly 81, no. 3 (2003). 10Mikki Waid, “Social Security Disability Benefits: A Lifeline for Workers with Disabilities,” Fact Sheet 324, AARP Public Policy Institute, Washington, DC, April 2015. See also Trupin, Insight on the Issues 112, March 2016 Sebesta, and Yelin, Transitions in Employment and Disability. © AARP PUBLIC POLICY INSTITUTE 11Johnson, Favreault, and Mommaerts, “Work Ability.” 601 E Street, NW Washington DC 20049 12The foreign-born population referenced in this Fact Sheet includes two major groups: foreign-born people who have Follow us on Twitter @AARPpolicy obtained US citizenship (naturalized citizens) and all other on facebook.com/AARPpolicy immigrants. The Current Population Survey does not www.aarp.org/ppi distinguish between legal and undocumented immigrants. For more reports from the Public Policy 13Generally, a person must work at least 10 years in Social Institute, visit http://www.aarp.org/ppi/. Security–covered employment to be eligible for retirement benefits. 14Foreign-born people include both naturalized citizens and immigrants. The Current Population Survey does not distinguish between legal and undocumented immigrants. 15Benjamin Bridges and Sharmila Choudhury, “Examining Social Security as a Retirement Resource for Near-Retirees, by Race and Ethnicity, Nativity, and Disability Status,” Social Security Bulletin 69, no. 1 (2009). 10