Social Security dramatically reduces inequality between white and minority retirement wealth.
A forthcoming study by two of my colleagues, Wenliang Hou and Geoff Sanzenbacher, looks at retirement wealth by race.
They defined wealth broadly to include assets in retirement plans , non-retirement plan assets, housing wealth, and Social Security benefits. They used data from the Health and Retirement Study, a biannual survey that follows households over age 50. In the case of defined-benefit plans and Social Security, the authors created a “wealth” variable by projecting future benefits, discounting those benefits to age 65, and then prorating them to the worker’s age at the time of the survey.
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.
More from MarketWatch Retirement Alicia H. Munnell Alicia H. Munnell is the director of the Center for Retirement Research at Boston College.
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