blue Social Security cards fanned out (Photo: Shutterstock)

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Any decisions made regarding Social Security need to consider the changingdiversity of the U.S. and the greater impact that the safety netprogram has on minorities and those with low to middle incomes.

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So says a new brief from the Center for Retirement Researchat Boston College, which analyzed data from the Health andRetirement Study to see just how much Social Security affected the retirement wealthof whites, blacks and Hispanics during 1992–2016.

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The disparity between typical white households and minorityhouseholds when it comes to retirement funds is shockingly largewithout Social Security, with the former having 5–7 times the fundsof the latter. However, when Social Security is added into theequation, the gap falls to 2–3 times.

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When one considers that the wealth calculation, without SocialSecurity, includes such sources as defined benefit plans(pensions), defined contribution plans (401(k)s), housing wealthand any other wealth not resulting from a retirement plan—stocks,bonds, mutual funds and other investments, as well as checking andsavings account balances—the fact that Social Security alone, withits progressive benefits, can cut that gap so substantially reallydrives home how important the program is to those it was devised tohelp: people without, or without much, retirement savings.

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It works pretty much the same way for lower- and middle-incomehouseholds compared to those at the high end of the income chain,since, as the brief says, "Social Security reduces inequalitybecause it covers nearly all workers and has a progressive benefitdesign, making it the most equal form of retirement wealth."

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The report concludes that policymakers need to consider thisoutsized effect on the lower-income and minority segments of thepopulation, since the outsized effect of Social Security inequalizing retirees' income will have an equally outsized effect ifany changes that reduce benefits—such as increases in the FullRetirement Age—are considered. What they will do, instead ofsolving any fiscal problems with Social Security, says the report,"would tend to increase retirement wealth inequality."

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Marlene Satter

Marlene Y. Satter has worked in and written about the financial industry for decades.