HERITAGE STUDY: SOCIAL SECURITY SHORT-CHANGES BLACKS (SUMMARY) (TEXT)
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A new Heritage Foundation study finds that a low-income black male age 38
or less is likely to pay more into Social Security than he can ever expect
to see in benefits, after inflation and taxes are considered. Staying in
the current system will likely cost him $160,000 in lifetime income.
According to the study's author, economist William Beach, future beneficiaries,
particularly low-income minorities, would get a much higher rate of return
if they could put their funds into private investment plans.
- Beach found that a 30-year-old two-worker family -- each earning $26,000
a year -- will receive only a 1.23 percent rate of return on the payroll
taxes they paid into Social Security during their working years, with retirement
benefits totaling $450,000.
- But if they were permitted to put their Social Security taxes into
safe IRA-type investments and got an average 5 percent return, they would
enter retirement with $975,000.
- Social Security returns are especially meager for black low-earners
because they are more likely to die at an earlier age than whites before
receiving benefits.
- In fact, Beach found low-income single black men older than 38 "actually
face a negative rate of return under Social Security."
Moreover, a single black male in his 20s can expect to get back just
88 cents on the dollar under Social Security -- a loss of $13,377. Even
by just investing in U.S. Treasury bills, he could realize a $79,846 gain.
A low-income 30-year-old single black woman will receive only a 1.8 percent
rate of return, compared to 2.2 percent for her white counterpart.
Source: William Beach and Gareth Davis, "Social Security's Rate of
Return," Study 98-01, January 15, 1998, Center for Data Analysis, Heritage
Foundation, 214 Massachusetts Avenue, N.E., Washington, D.C. 20002, (202)
546-4400.
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RAND STUDY: HOW SOCIAL SECURITY HURTS BLACKS (SUMMARY)
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On average, black men get nothing for their years of paying into the Social
Security system. As now set up, the system hurts other minorities as well
-- in effect using their payroll taxes to subsidize payments to whites.
- Since the life expectancy for the average black male is expected to
be only 64.8 years in the year 2000 (down from 65.4 years in 1995) and
the retirement age for Social Security is 65 and climbing, most won't see
a penny in payments for their years of forced contributions.
- Starting work at a younger age than whites -- since whites are more
likely to go to college -- blacks tend to pay into the system earlier and
longer.
- A Rand study estimates that black workers transfer as much as $10,000
of their lifetime income to the system -- in effect subsidizing white retirement.
- The poorest 20 percent of past wage earners rely on Social Security
for 80 percent of their retirement income, while the wealthiest 20 percent
depend on it for 20 percent of their income, according to a Cato Institute
study.
Plans to "fix" Social Security through a reduction in payments
or a payroll tax hike would make the situation even worse.
A reduction of benefits by one-third would leave poor seniors with a post-retirement
income of just 50 percent of their pre-retirement wages, according to Cato
economist Michael Tanner. Social Security currently provides 70 percent
of pre-retirement wages.
To allow the system to meet its benefit obligations in the future, Congress
would have to raise payroll taxes from the current 12.8 percent of wages
to 18 percent.
Advocates of privatization make the point that poorer workers would be much
better off if they were allowed to invest in private financial instruments
-- and they could leave any funds remaining at their death to their families
or other heirs.
Source: Editorial, "Social Security's Raw Deal," Investor's
Business Daily, April 14, 1998.
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Du Pont's Opinion: Social Security Hurts Black Males
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Social Security is a lottery in which those who live the longest win, while
those who work and pay into the system but die before retirement lose, says
former Governor Pete du Pont (R-Delaware).
Statistically speaking, the biggest losers are black males, whose average
life expectancy from birth is only 65 years, while white females are the
biggest winners due to their longer average lifespans. Thus black males
in effect subsidize the retirement of white females. Current statistics
show:
- The death rate of young black males is high.
- In addition, about 40 percent will die between the ages of 55 and
75.
- Out of 1,000 black males, only 349 will make it to their 75th birthday.
- However, more than twice that number of white females (712) will make
it to their 75th birthday.
In addition, white women tend to have higher incomes and greater assets
than black males, irrespective of their Social Security benefits. They are
also less likely to work than males, since they are more likely to be married
to higher-income white males who make enough so their wives aren't forced
to work.
Black males who die early get little in return for their Social Security
contributions.
- Their widows get an average monthly benefit of $630 for the rest of
their lives.
- But that is less than what a minimum wage worker would get back if
the amount paid in Social Security taxes had been put in an investment account.
Several studies have shown that many median-income workers starting today
under a privatized retirement system would retire millionaires. Unlike Social
Security benefits, the money in a vested retirement account would be theirs,
and if they die before retirement, they could leave it to their widows or
children.
Source: Pete du Pont (Policy Chairman, National Center for Policy Analysis),
"Social Security is a Gamble," Dallas Morning News, September
29, 1996.
For full text:
http://www.ncpa.org/oped/dupont/sep1996.html
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