NCPA - National Center for Policy Analysis

Wealth Accumulation for Low-Income Workers

December 11, 2001

Former Sen. Daniel Patrick Moynihan, co-chairman of President Bush's Commission on Social Security Reform, "says he is puzzled that advocates for the poor have had so little to say about proposals for a thrift-savings component to Social Security," writes Washington Post columnist William Raspberry.

  • Unlike federal workers who contribute to a savings plan, and thus can accumulate bequeathable wealth as well as retirement benefits, Social Security annuitants get only direct benefits.
  • Through investment accounts, workers could accumulate wealth -- for instance, a two-earner couple with average earnings could have up to a million dollars.
  • Wealth accumulation is important for poor and minority workers because they have a lower life expectancy and tend to receive fewer years of Social Security benefits -- for instance, two-thirds of African-American men fail to survive past 60.

Jagadeesh Gokhale of the Federal Reserve Bank in Cleveland says the poor are disproportionately dependent on Social Security for their retirement income. Social Security is only a minor fraction of the retirement income of the well off; the rest of their income -- mostly generated from investments -- is heritable wealth they can pass on if unused.

Investment accounts would allow low-income workers the opportunity to use some portion of their Social Security contributions for wealth accumulation.

Source: William Raspberry (Washington Post), "Social Security reform may help poor most," Dallas Morning News, December 10, 2001.


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