America’s Retirement Race Gap, and Ideas for Closing It

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The protest movement across the United States this summer has prompted a national conversation about ways to correct the acute economic inequities facing Black and other Americans of color. Those inequities don’t end when people retire.

Racial gaps in retirement security were large before the coronavirus struck, and the economic disruptions caused by the pandemic could worsen the problem.

Solutions will depend, in part, on addressing the structural racism in American society — but policymakers also have proposed ideas for shrinking the gap more quickly.

Since the pandemic hit, unemployment rates for older Black and Latino workers have been much higher than for their white counterparts, and evidence is mounting that millions of older workers will retire prematurely. That will mean sharp reductions in Social Security income, savings and costly disruptions in employer-provided health care that will hit nonwhite workers especially hard.

But the gaps in resources for retirement were large before the pandemic. In 2016, the typical Black household approaching retirement had 46 percent of the retirement wealth of the typical white household, while the typical Hispanic household had 49 percent, according to a study by the Center for Retirement Research at Boston College.

The result: At a time when many seniors struggle to make ends meet, Black and Latino retirees are especially likely to lack sufficient resources. Two-thirds of single Black retirees — and three-quarters of single Latinos — have incomes below the Elder Index, a data set from the University of Massachusetts Boston that aims to measure the capacity of older people to cover basic living expenses. By contrast, half of white seniors have resources below the index.

Credit…The Urban Institute

The disparities stem from racism in the labor market, says Kilolo Kijakazi, a fellow at the Urban Institute who has written extensively on income, wealth and race. “We have a history of discrimination in hiring, pay, promotions and benefits. Discrimination in hiring also contributes to occupational segregation,” she said.

Labor inequities began with the enslavement of Black people, she adds. “White people dealt in human trafficking of people of African descent in order to create wealth for white people, but Black people did not benefit from the wealth of their labor. After Emancipation, we had laws and regulations designed to maintain that effect and even strip Black people of wealth they were able to create for themselves in the face of these odds.”

Policies served as barriers to wealth accumulation by Black people. The Jim Crow-era Black Codes restricted opportunity in many Southern states; racially restrictive covenants barred them from buying homes in white neighborhoods; and redlining practices made mortgages hard or impossible to obtain. The inequities have compounded over time, as families were unable to transfer wealth to subsequent generations.

“The way that wealth is generally created for most Americans is, wealth begets more wealth,” says Darrick Hamilton, an economist and executive director of the Kirwan Institute for the Study of Race and Ethnicity at Ohio State University. “Having access to a capital foundation that puts you into assets that will passively appreciate over your life — that’s how most Americans generate wealth.”

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Credit…Ty Wright for The New York Times

Social Security helps to level racial inequity in retirement. That’s due in part to the program’s progressive benefit formula — it returns a higher percentage of pre-retirement income to lower-income than higher-income workers. And unlike private pensions and homeownership, nearly all Americans participate in Social Security.

“The universal nature of Social Security is a big factor,” says Geoffrey Sanzenbacher, a research fellow at the Center for Retirement Research and co-author of the study.

The center measured all retirement wealth, including income from Social Security, employer-sponsored retirement plans, other financial assets and home equity. When Social Security is excluded, Black Americans have just 14 percent the wealth of whites, and Latinos have just 20 percent.

Several ideas have surfaced for changing Social Security that could close the gap further — but the most important might fall into the category of “do no harm.”

Some policymakers have pushed to raise Social Security’s full retirement age — when you can receive 100 percent of your earned benefit — as part of the solution to the program’s long-term financial shortfall. But workers of color earn less, have lower life expectancy and tend to work in physically demanding occupations that become more difficult to continue at older ages. For example, 50 percent of Black workers ages 55 to 62 reported in 2014 that they have jobs requiring “lots of physical effort,” compared with just 32 percent of whites.

Under the current system, filing at the earliest age, 62, gets you 75 percent of your annual full benefit; every 12 months of delay past your full retirement age (currently around 66, depending on your year of birth) gets you an additional 8 percentage points until you turn 70.

Retirement ages already are rising gradually to 67 from 65 under changes enacted in 1983. The Boston College researchers note that any further increase in full retirement ages would increase retirement wealth inequity and have a disproportionate impact on minority households.

What’s more, the average longevity of Black Americans is shorter — in 2014, their average life expectancy from age 65 was 18.1 years, compared with 19.3 years for whites, according to the Centers for Disease Control and Prevention. And the expectancy for Black men was even shorter, at 16.1 years.

“When you lengthen the retirement age to get the full benefit, you’re putting a cut on the people who are going to die younger,” says William E. Spriggs, chief economist for the A.F.L.-C.I.O. and a professor at Howard University. “Instead, we should be raising the tax on the higher-income people, who are going to live longer, and stop playing with the retirement age.”

One leading progressive organization would like to do more to address that issue. The group, Social Security Works, has proposed updating the current early retirement reductions, which have not been revised since 1956.

The percent of full benefit a worker could receive at age 62 would increase to 85 percent, gradually rising to 100 percent at full retirement age.

This change could be especially helpful to people of color if early retirement accelerates because of the pandemic.

Another Social Security change that Ms. Kijakazi and other experts think could help is to establish a more effective basic minimum benefit that ensures seniors don’t live in poverty. Currently, Social Security has a special minimum benefit, but its value has evaporated relative to standard benefits because its value is pegged to consumer inflation rather than indexed to wage growth, which generally rises more quickly. Several Social Security proposals from Democrats have called for a new minimum benefit that would provide a supplement using a sliding scale starting at full retirement age.

Increasing benefits for workers who enter and leave the labor force more frequently also could help. The current Social Security benefit formula is based on a worker’s highest 35 years of earnings; reducing that to 30 or even 25 would have the effect of increasing the adequacy of benefits for people who leave the work force to provide care or because of job loss.

A caregiver credit could be created that permits workers to earn Social Security credits for time devoted to that work. The idea has been embraced by some advocates and legislators, and included in bills introduced by Representative Nita Lowey, Democrat of New York, and Senator Chris Murphy, Democrat of Connecticut.

Professor Hamilton has proposed creating a federal program of “baby bonds,” which would provide every child with a government-funded trust account at birth, starting with a $1,000 contribution; those born into lower-wealth families would receive more contributions over time, and the accounts would benefit from compound interest growth.

Credit…Kathryn Gamble for The New York Times

Baby bonds were a plank in the presidential campaign platform of Senator Cory Booker, Democrat of New Jersey. Senator Booker and Representative Ayanna Pressley, a Democrat from Massachusetts, have sponsored bills in the Senate and House that would fund accounts guaranteed to accumulate to $46,531 at age 18 for children born into the lowest-income families, according to a press officer for Mr. Booker. The accounts would be managed by the Treasury and grow with a guaranteed interest rate and inflation protection, probably invested in special Treasury securities.

Use of the funds would be restricted to what Professor Hamilton calls “asset-enhancing endeavors,” such as buying a home, receiving a debt-free education or starting a business.

“The idea here is to ensure that access to capital is not limited to those that receive a trust fund because of the family that they’re born into,” he said. “And what we do to help younger people will have a dramatic impact on how they finish.”

Professor Hamilton’s version of the baby bond also would allow account owners to convert their funds into Individual Retirement Accounts. “If they don’t want to use the money earlier, they can use it when they are ready or let it go all the way to retirement.”

The idea for baby bonds was included among policy recommendations written jointly by allies of Joseph R. Biden Jr., the former vice president, and Senator Bernie Sanders of Vermont, which were delivered to Mr. Biden last month.

Professor Hamilton said he thought of baby bonds as a bit different from reparations for slavery, since they would be paid — at some level — to all Americans and the benefit is prospective, rather than retroactive.

“But I do describe baby bonds as anti-racist,” he said. “Wealth disparity probably is the most cumulative indicator of our intergenerational racist society.”

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