#2 - Why Social Security is a Bad Deal for Many African-Americans


Under the current Social Security system African-Americans, on average, get less in benefits relative to the taxes they pay than do whites. This is mainly due to the fact that black men and women both have shorter life expectancies than their white counterparts, at every age and income level.

Because lifetime Social Security benefits are determined largely by longevity, someone who lives to 100 receives far more in benefits than someone who dies at 70. This also means that, groups of people with shorter life expectancies, such as African-Americans; on average get back less from the system.

A hypothetical example shows how this works. Assume that a 30-year-old black man and a 30-year-old white man each earn $30,000 per year over his working lifetime. By the time they retire, they will both have paid $136,740 in Social Security taxes and will get the same $1,162 monthly Social Security benefit. However, if they both reach age 65 then at that point the white man can expect to live until age 81, but the black man only to age 79. If they both live to their expected ages, the white man will receive $189,389 in total Social Security benefits, but the black man will receive only $161,750, almost $27,000 less than his white counterpart. Thus, for every dollar they paid into the system, the white man will get back $1.38 but the black man will get back only $1.18.1

When someone dies, their heirs inherit their remaining wealth. But because Social Security benefits are not inheritable the heirs get none of the money a person would have collected from social security had they lived longer. Thus, individuals, and groups of individuals such as African-Americans, with shorter life expectancies would be better off if their Social Security taxes had been invested in private, inheritable, accounts instead.


1 The example assumes both men begin receiving benefits at age 68. Tanner, Michael, Disparate Impact: Social Security and African Americans, Briefing Paper No. 61, CATO Institute, February 5, 2001. This paper can be found at: http://www.socialsecurity.org/pubs/articles/bp-061es.html


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