Examining Social Security Benefits as a Retirement Resource for Near-Retirees, by Race and Ethnicity, Nativity, and Disability Status

Article excerpt

This article analyzes Social Security benefits as a retirement resource for selected subgroups of recent cohorts of near-retirees. The analysis therein examines the distribution of benefits among subgroups by (1) race and ethnicity, (2) nativity, and (3) disability status. We use improved data (actual earnings histories) to produce more accurate measures of benefits. We look at how the average values of several benefit measures, such as Social Security wealth and earnings replacement rates, differ among the selected subgroups and discuss reasons for these differences. This study finds that substantial differences in earnings levels and/or mortality levels among these subgroups interact with Social Security program provisions to produce sizable differences in the values of our benefit measures.

Selected Abbreviations

AIME average indexed monthly earnings

CPS Current Population Survey

DI Disability Insurance

MINT Modeling Income in the Near Term

OASDI Old-Age, Survivors, and Disability Insurance

OASI Old-Age and Survivors Insurance

SIPP Survey of Income and Program Participation

SSA Social Security Administration

SSW Social Security wealth

Summary

This article provides an in-depth examination of one component of retirement resources, Social Security benefits, for specific subgroups of recent near-retirees. It examines the distribution of benefits among (1) several race/ethnic subgroups that include non-Hispanic whites, non-Hispanic blacks, Asians, and Hispanics; (2) the native-born and the foreign-born; and (3) disability-status subgroups. Our choices of subgroups are driven by the long-standing interest by policymakers in many of these subgroups as well by the need to address the conflicting or missing empirical evidence with regard to these subgroups.

This study considers benefits for people who turn age? 61 during the 1993-2007 period. Age? 61 is chosen because it is the last age before the age of first eligibility for Social Security retired-worker and spouse benefits, which is 62. We compute a variety of benefit measures (Social Security wealth (SSW), annualized benefit payouts, and earnings replacement rates), some of which have not been used in previous studies. We rely primarily on actual earnings history data in computing streams of benefits. The use of observed earnings histories allows us to capture the large variation in these histories, unlike methods that estimate earnings histories based on a single earnings equation. The study uses Modeling Income in the Near Term (MINT) data files, which include Social Security Administration (SSA) administrative earnings and benefit history records exact-matched to the 1990-1993 panels of the Census Bureau's Survey of Income and Program Participation (SIPP). Measuring benefits in innovative ways and using improved data, this analysis explores in detail the benefits of subgroups who command considerable interest.

What are the effects of various economic, demographic, and Social Security program factors on the differences in benefit measures of these subgroups?

Some of our results have been reported in the literature. For example, we report that whites receive the highest amounts of SSW and annualized payouts among race/ethnic subgroups, because of their higher indexed taxable earnings. Taxable earnings replacement rates are the lowest for whites and higher for minority race/ethnic subgroups because of the progressivity of the Social Security benefit formula. Immigrants in all race/ethnic subgroups, on average, receive lower SSW and annualized payouts than the native-born as a whole, primarily because of their lower indexed taxable earnings. Disabled near-retirees, as defined in this article, receive considerably less in median amounts of SSW than other near-retirees, because of their markedly shorter lives.

In addition, some other interesting findings emerge from our study of these subgroups. …