What Sisters Need To Know About The Safety Net
Maya Rockeymoore, Ph.D.

In today’s unsteady economic climate, maintaining financial stability is extremely important for African American women. Like other Americans, many sisters have followed the advice of financial experts and invested in 401(k) and IRA plans only to see their investments take a direct hit with recent downturns in the stock market.

Yet there is another plan that is especially important to African American women in tough economic times. Social Security is vital to the financial security of African Americans yet most black women don’t understand its importance to their financial security or how it is currently being threatened by those who don’t care about its value to African American families.

An Important Source of Financial Security

Social Security is a comprehensive insurance system that provides economic assistance to workers and their families on an as needed basis at various points during their lives. Often misunderstood as a form of welfare, Social Security is only available to workers who earn its benefits by paying into the Federal Insurance Contribution Act (FICA) tax for at least ten years.

Often called the “third leg of the retirement stool,” Social Security’s guaranteed benefits work in tandem with private pensions and savings to provide vital economic support during retirement years. Yet Social Security is more than a retirement plan. Its benefits also kick in to support individuals and families when a breadwinner becomes disabled or dies prematurely.

For example, Social Security came in handy when disaster unexpectedly struck twice in Sandra’s household. For years her father worked hard as a machine operator for a construction company to support his wife and four children. When Sandra was 15 years old, her father was diagnosed with a terminal illness and could no longer work.

Without her father’s income to support the family, Social Security disability benefits became their primary source of financial support. After his death Sandra’s mother received Social Security survivor benefits to feed and cloth her family and put Sandra and her siblings through school.

Several years after her father’s death, Sandra’s mother also became disabled with a severe form of rheumatoid arthritis. With all of her children grown, Sandra’s mother, now 61, relies on Social Security disability benefits to meet all of her food, clothing and shelter needs.

Reflecting on her family’s experience Sandra says, “The [Social Security] benefits did not make us rich and it was a far cry from the way we were used to living prior to my father and mother becoming ill. However, one of the things that I'm thankful for is the fact that we had those funds available so that we did not have to starve to death, or be put out of our home.”

Many who view Social Security as a retirement program, overlook the importance of its disability and survivor benefits to African American families. While only 12 percent of the U.S. population, African Americans are 17 percent of those receiving Social Security disability benefits and 22 percent of all children receiving Social Security survivor benefits.

A 2000 study by the National Urban League Institute for Opportunity and Equality found that African American children are almost four times more likely to be lifted out of poverty by Social Security than are white children

As traditionally lower-wage earners, African American women are particularly dependent on Social Security retirement, disability, and survivor benefits.

“African American women rely on Social Security for a greater portion of their retirement income because we are less likely to have pension income, investments and private saving,” says Dr Kilolo Kijakazi, a Senior Program Officer at the Ford Foundation in New York. “Because African American men have a higher mortality rate at earlier ages, African American women also disproportionately benefit from Social Security survivor benefits as mothers of young children.”

Black women’s heavy reliance on Social Security retirement benefits is compounded by their longer life span, which means that they are more likely to outlive any private savings they manage to accrue. In addition, because African Americans are traditionally lower-wage earners, black women are less likely to draw a larger benefit as a result of being married to a higher earning spouse.

Fortunately, Social Security protects African American women against the risk of extreme poverty during retirement by providing a guaranteed, monthly income that is protected from inflation for life.

The Privatization Threat

Social Security has successfully lifted millions of families out of poverty for more than a half century, but the program is now threatened by those who want to replace it with private retirement accounts that individuals can invest on Wall Street.

Claiming that the current system shortchanges African Americans (particularly black men) who tend to die younger than whites, advocates for privatizing Social Security argue that these accounts—funded with Social Security payroll taxes—would generate a greater rate of return for African Americans thereby creating more wealth for black families.

The truth is, however, that these claims are highly misleading and ignore the features of Social Security that are important to the financial security of African American women and their families.

First, the survivor and disability components of the Social Security program would be severely cut or eliminated if the country were to move to a privatized retirement system. This is true because the current system uses one formula to finance survivor, disability and retirement benefits from the Social Security Trust Fund. Privatization advocates would divert money from Social Security to create individual retirement accounts, resulting in a reduced guaranteed benefit.

To make matters worse, privatization advocates assume that workers will be able to make up for the gap in guaranteed benefits by getting a higher rate of return at retirement. Even if the market’s performance allowed this to occur, those who receive disability or survivors benefits—typically younger workers—would not have enough money accrued in their individual accounts to make up for the reduction in guaranteed benefits. This would disproportionately harm African American families.

Second, private accounts would eliminate the progressive aspects of the current system that provides more help for low-income workers. Because private accounts are based solely on the investment performance of deposits into the accounts, women would receive less value than men—even in a stable market environment—due to the smaller wages upon which they base their contributions.

Private accounts would also disadvantage African American women because they are more likely to work part-time and spend time out of the labor force. By contrast, Social Security has a benefit formula to help alleviate the financial impact of women’s unique work patterns on benefits, private accounts would not compensate for this difference.

Finally, a system of private accounts would increase retirement insecurity for African American women and their families because they eliminate Social Security’s guaranteed benefits in exchange for the uncertainty of an unstable stock market.

“Social Security is a guaranteed source of income. Given our heavy reliance on it, and the lack of other secure sources of income, placing this one guaranteed form of income at risk increases African American women’s overall vulnerability to extreme poverty when there are downturns in the market,” says Dr. Kilolo Kijakazi.

Precisely because African Americans are disproportionately low-income and less likely to have private pensions, it is especially important that Social Security’s guaranteed safety net be there to protect them during tough economic times.

Keeping An Eye On Policymakers

While the lure of the stock market may be tempting for many, African American women must be wary of schemes that seek to undermine a program that has been vital to their own economic interests and to the survival of their families for years.

This isn’t to say that African American women should reject the goal of wealth accumulation. Far from it.

Indeed, sound investment practices coupled with an aggressive savings plan, homeownership and entrepreneurial activity provide the most promising pathways to economic self-sufficiency for black women and their families.

Giving ground to those who want to jeopardize Social Security’s guarantee to play the stock market would not help African American women achieve their financial goals.

So, it is important to carefully follow the policy debate over the future of Social Security, become better educated about the details of privatization proposals, and be more aggressive about contacting representatives in Congress—before it’s too late to protect the interests of African American families.

Dr. Maya Rockeymoore is the Vice President for Research and Programs at the Congressional Black Caucus Foundation.