Impact of Social Security privatization on Hispanics

Senator Harry Reid of Nevada, an advocate of Hispanics, has conducted research into the impact of privatization of Social Security on Hispanics and finds that it will have disastrous consequences on them. Hispanics will be specially hit hard because the program is central to health and well-being of elderly Hispanics. Below are some of the findings of Senator Reid's research:

The Social Security program has been remarkably important for Hispanics

The Government Accounting Office found that, “In the aggregate, blacks and Hispanics have higher disability rates and lower lifetime earnings, and thus as a group tend to receive greater benefits relative to taxes than whites.” [GAO, Social Security and Minorities, April 2003]

Retired Hispanics Have Lower Levels of Private Savings and Rely More on Social Security

“Older Hispanics are less likely to have income from private pensions and assets than whites.” 76 percent of all Hispanics over the age of 65 rely on Social Security benefits for 50 percent or more of their total income while nearly half rely on Social Security for 90 percent or more. [AARP Public Policy Institute, September 2003]

Hispanics Have Longer Expected Retirements Making Social Security Particularly Important

Hispanics on average live longer than other racial and ethnic groups. Because of their longer lifespan, Social Security is a key component of their retirement security. According to the Center on Budget and Policy Priorities, “By comparison, a white man who was 20 in 2001 is expected to have 16 years of retirement and a Latino is expected to have 19 years.” Social Security provides a guaranteed benefit every month for as long as the recipient is alive – unlike with private accounts, a worker cannot outlive her benefits. [Center on Budget and Policy Priorities, 5/12/03]

Without Social Security, almost 33 Percent of Older Hispanics Would Fall Into Poverty

Social Security is remarkably successful at keeping retired Americans out of poverty. Without these benefits, almost 33 percent of older Hispanics would fall into poverty. [AARP Public Policy Institute, September 2003] (Related article: AARP opposes Social Security privatization)

The Bush plan will cut benefits by tying benefits to the rise of inflation instead of wages

“Because wages tend to rise considerably faster than inflation, the new formula would stunt the growth of benefits, slowly at first but more quickly by the middle of the century.” Younger workers are more likely to be Hispanic than others, thus cuts in benefits for the next generations will have a greater impact on Hispanics working today. [ Washington Post, 1/4/05] (Related article: Why Bush wants to reform Social Security)

Benefits Will be Cut By 45 Percent or More

By changing the way Social Security benefits will be calculated, seniors will see their benefits greatly reduced. “According to the Social Security Administration's chief actuary, a middle-class worker retiring in 2022 would see guaranteed benefits cut by 9.9 percent. By 2042, average monthly benefits for middle- and high-income workers would fall by more than a quarter. A retiree in 2075 would receive 54 percent of the benefit now promised.” [ Washington Post, 1/4/05]

Bush’s Proposed Cuts Would Replace an Ever-Smaller Share of Preretirement Income

The Bush proposal to change the indexing mechanism used to calculate Social Security benefits will continually reduce the portion of workers’ preretirement income that Social Security will replace. “Social Security benefits currently equal 42 percent of the earnings of an average worker retiring at 65. Under the new formula, that benefit would fall to 20 percent of pre-retirement earnings. Future retirees would, in effect, be consigned to today's standard of living.” [ Washington Post, 1/4/05]

Private Accounts do not Guarantee a Minimum Benefit and Threaten Future Hispanic Retirees with a Greater Likelihood of Poverty

Because current Hispanic workers are less likely to hold other assets or to participate in private pensions or retirement accounts, the risk involved in diverting Social Security funds into the stock market would be more greatly felt by Hispanics than other workers. Several studies have shown that stock market returns are not always better than the guaranteed benefit that Social Security provides – it all depends on timing, and a person cannot choose when they become disabled or when the sole income provider dies. [Bureau of Labor Statistics, Annual Demographics Survey 2002; Economic Policy Institute, 12/22/04]

Recommended article: Most Americans oppose privatization of Social Security