Academic journal article Social Security Bulletin

Immigrants and Retirement Resources

Academic journal article Social Security Bulletin

Immigrants and Retirement Resources

Article excerpt

Introduction

An extensive literature in economics documents that immigrants receive lower wages than native-born workers with similar characteristics.1 Those gaps in wages imply that immigrants may enter retirement at a significant financial disadvantage relative to US natives. However, much less work has examined differences in retirement resources and retirement security between immigrants and natives. This topic is important because immigration has often been suggested as a way to improve, at least temporarily, the finances of a pay-as-you-go Social Security program (see, for example, Lee and Miller (2000), Storesletten (2000), and Board of Trustees (2010)). This approach to improving the financial stability of Social Security can be particularly effective in a system with many illegal immigrants who may pay Social Security taxes but never claim benefits (Goss and others 2013). Understanding how immigrants as a whole fare when they reach retirement is an important consideration when evaluating the long-term costs and benefits of any changes in immigration policy. Although Social Security program rules are neutral in that they do not insure one group differentially from another, it is important to understand the extent to which oldage outcomes might differ for a large immigrant population.

In this article, we use the Health and Retirement Study (HRS) to compare retirement resources of immigrants with those of the native born. Most research on the wealth of immigrants nearing retirement ages does not examine the potential role of Social Security. This is an important omission because Social Security benefits are the most important source of income for most retired Americans. We use HRS data linked with restricted-access data on earnings histories from Social Security administrative records to estimate future Social Security benefits for respondents who have not yet reached retirement age. Then, we supplement those estimated benefits with self-reported data on actual Social Security benefits for respondents aged 65 or older, as well as data on pension coverage, housing, and total net worth. We document differences in retirement resources between immigrants and natives and then explore the role of economic and demographic characteristics in explaining those differentials. Finally, we look at differences in retirement resources of immigrants based on the number of years they have spent in the United States.

We find that working-age immigrants have lower predicted Social Security benefits than natives and that immigrants over the age of 65 have lower self-reported actual Social Security benefits. These differentials are statistically significant and remain so even after controlling for a number of demographic and socioeconomic characteristics such as education, self-reported health, census division, and race and ethnicity. However, there is wide variation in duration of residence in the United States among HRS respondents, and we find that the immigrant differentials in expected resources from Social Security depend greatly on the number of years they have spent in the country. Although immigrants in the HRS who have been in the United States for the median number of years (about 36) or less have substantially lower expected resources from Social Security than natives, that gap decreases with additional years of US residency. Furthermore, we find that the gap is due to fewer quarters of work in Social Security-covered employment, rather than lower earnings during covered quarters.

The differences in Social Security income may not lead to lower retirement security if immigrants compensate for them with higher private wealth accumulation. We find that average net worth is substantially lower for immigrants. However, when we hold education, race, ethnicity, and other demographic characteristics constant, the foreign born have substantially higher net worth than native-born respondents with the same characteristics, suggesting that this wealth gap is due to differences in characteristics and not immigrant status per se. …

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