NCPA - National Center for Policy Analysis

Social Security's Bad Deal for African Americans

July 9, 2002

African Americans rely more heavily than other demographic groups on Social Security for their retirement income. According to the Cato Institute, three of four black retirees rely on Social Security for half or more of their retirement income, and 37 percent rely on Social Security for all of their income.

Although Social Security's rate of return is dismal for all Americans, it is particularly bad for African Americans:

  • According to an NCPA study, a 20-year-old black male can expect a real rate of return of only 0.73 percent, while a white male can expect a return of 1.82 percent.
  • White 20-year-old males can expect 47 cents in benefits for every $1 they pay in taxes; 20-year old black males can expect to receive only 34 cents.

This is so because the rate of return on Social Security taxes paid is inherently linked to length of life, and blacks have a shorter average life expectancy than whites across all income levels.

  • The average life expectancy at birth for a black male is 67.8 years, while a white male can expect to live to age 73.9. [See the Figure.]
  • Average life expectancy for a black woman is 74.7, compared to 79.4 for whites.
  • Thus a black male can expect to pay Social Security taxes his entire working life but receive less than a year of benefits. White females will collect benefits for almost 5 years longer than black women.
  • And blacks average nearly $21,000 less than whites in lifetime Social Security benefits, according to President Bush's Commission to Strengthen Social Security.

Furthermore, blacks are more likely than whites to enter the work force at a younger age. But since Social Security ignores up to a decade's worth of payroll tax payments in calculating benefits, they get no extra benefits for their extra work.

Source: NCPA Staff, "African Americans Benefit Most from Personal Retirement Accounts," Brief Analysis No. 404, July 9, 2002, National Center for Policy Analysis.

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