Social Security and Minorities

Although Social Security's benefit and contribution provisions are neutral with respect to race, ethnicity, and gender, GAO found that because of socioeconomic characteristics, minorities have benefited from the Social Security program. Because minorities are more likely than whites to have lower lifetime earnings, they are advantaged by Social Security's progressive benefit formula that provides larger relative benefits for lower-paid workers. Moreover, blacks in particular are more likely to receive other important Social Security benefits, such as disability, that protect against lost earnings. Some reforms that would reduce benefits to restore solvency could have a disproportionate effect on low-wage earners, including blacks and Hispanics, depending on how they are structured. Restructuring Social Security to include individual accounts would also likely have varying effects on different racial and ethnic groups. However, GAO found that education and family income are better predictors of individuals' investment behavior than race. Persons with less education and lower incomes tend to invest more conservatively than those with more education and higher income. Because blacks and Hispanics are more likely to have less education and lower incomes, they would likely earn smaller returns on their accounts, although they would bear less risk. These results suggest that if individual accounts were adopted as part of comprehensive Social Security reform, investor information and education would be needed to help low-income individuals with their investment decisions.

GAO noted that: (1) while social security's benefit and contribution provisions are neutral with respect to race, ethnicity, and gender, GAO found that because of certain socioeconomic characteristics, minorities have benefited from the Social Security program; (2) because minorities are more likely than whites to have lower lifetime earnings, they are advantaged by social security's progressive benefit formula that provides larger relative benefits for lower-paid workers; (3) moreover, blacks in particular are more likely to receive other important Social Security benefits, such as disability, that help protect against lost earnings; (4) certain reforms that would reduce benefits to help restore solvency could have a disproportionate effect on low-wage earners, including blacks and Hispanics, depending on how they are structured; (5) for example, raising the age of retirement would lower the average lifetime benefits of blacks relative to whites because of blacks' lower life expectancy; (6) restructuring Social Security to include individual accounts would also likely have varying effects on different racial and ethnic groups; (7) however, GAO's analysis indicates that education and family income are better predictors of individuals' investment behavior than race; (8) individuals with less education and lower incomes tend to invest more conservatively than those with more education and higher incomes; (9) because blacks and Hispanics are more likely to have less education and lower incomes, they would likely earn smaller returns on their accounts, although they would bear less risk; and (10) these results suggest that if individual accounts were adopted as an element of comprehensive Social Security reform, investor information and education would be needed to help low-income individuals with their investment decisions.