NCPA - National Center for Policy Analysis

NCPA Study: How Social Security Affects Different Racial Groups

December 28, 2000

Most people born since World War II can expect to receive less in Social Security benefits than they pay in taxes, but there are significant differences in how the system affects different racial groups, according to a new study by the National Center for Policy Analysis (NCPA).

For example, consider people entering the workforce today at age 20. Using current dollars, measured at a 4 percent discount rate:

  • On average, a black male can expect to pay $61,645 in Social Security taxes during his working years, but will get back only $20,666 in benefits.
  • Thus, this worker can expect a net lifetime loss of $40,979.
  • By contrast, a white male can expect to pay more than one-third more in taxes ($84,891), receive almost twice as much in benefits ($40,060) and experience a slightly larger net lifetime loss ($44,831).

Thus the rate of return on Social Security (benefits received for taxes paid) is less than half for blacks (0.7 percent) than whites (1.8 percent).

There are two reasons for these racial disparities. First, 84 percent of 20-year-old white men should reach normal retirement age; only 64 percent of 20-year-old black men expect to live that long. So black men, on average, will earn fewer retirement checks. But black men tend to earn less, and Social Security's benefit formula favors lower-income workers.

The NCPA study also found expected losses for women entering the Social Security system are less than for men and couples with nonworking spouses do better than singles.

Source: Liquin Liu and Andrew J. Rettenmaier, "Social Security and Race," Policy Report No. 236, December 2000, National Center for Policy Analysis.


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