Social Security as it currently exists is a gamble Ð one in which some people win and others lose. Statistically speaking, we know which segments of the population will win and which will lose. Ethically speaking, we ought to be outraged because the system is patently unfair.
The winners in the Social Security lottery are the ones who live the longest, thereby collecting benefits for years. The losers are those who work and pay into the system most of their lives and then die on or before retirement.
Who are these losers? Black males, predominantly, whose average life span from birth is only 65 years.
And the winners? White females. As a result, what we have is a system in which black males in effect subsidize the retirement of white females. Current statistics show:
The death rate of young black males is high. In addition, about 40 percent will die between the ages of 55 and 75. Out of 1,000 black males, only 349 will make it to their 75th birthday. However, more than twice that number of white females (712) will make it to their 75th birthday. Thus the Social Security payments made by young black males are paid out to older white women.
But the fact that black males often die without realizing the fruit of their forced savings through Social Security is only part of the story. The other part is that the system is manifestly unfair.
White women tend to have higher incomes and greater assets than black males, irrespective of their Social Security benefits. Not only do they live longer than any other segment of the population, they are less likely to work than males, since they are more likely to be married to higher income white males who make enough so their wives are not forced to work. As a result, those who pay in the least get the most.
What do black males who die early get for all their work and Social Security contributions? Not very much. Their widows get an average monthly benefit of $630 for the rest of their lives. That may sound significant at first, but consider this: A person entering the workforce at 25 years of age in 1955 who worked for twice the minimum wage all of his life until he retired at 65 in 1995 would have almost $90,000 (in real dollars) had the same percentage required by Social Security been placed in a private account which had grown at an average annual rate of 5 percent.
Unfortunately, Social Security does not vest a worker's life-long contributions into a special account that would belong only to the worker. If it did, seniors would be much better off.
For example, an annuity paying 8.5 percent on that $90,000 principle would provide the same monthly benefit as Social Security for the spouse ($630) for his or her entire life, but in the private account the principal would remain intact so that it could be passed on to the heirs.
Several studies have shown that many median-income workers starting today under a privatized retirement system would retire millionaires.
Unfortunately for blacks, there is even more bad news about the current system. Average life expectancy for whites who reach 65 has been increasing. For blacks, both male and female, there has been little change over the last 15 years. If that trend were to continue, the cross subsidy from black males to white females would grow even larger.
The cross subsidization of the current Social Security system is a loser for those who tend to live shorter life spans. The only way to resolve that problem is to let workers have their own retirement accounts so that an untimely loss of life doesn't mean an untimely loss of savings.