5-27-05, 7:35am

Financial security for adults on the verge of retirement grew moderately stronger between 1989 and 2001, says a report released Wednesday by the Economic Policy Institute, and was fueled mainly by a strong growth in Social Security income.

According to the findings of economists Edward Wolff and Christian Weller, in a report titled, “Retirement Income: the Crucial Role of Social Security ” Social Security wealth increased $77,600, far more than private pension growth ($24,100) and all other wealth ($28,500) combined.

The study, sponsored by the non-partisan think tank, found that median-income households headed by someone between the ages of 56 and 64 became a little more able to replace at least 75 percent of its pre-retirement income and to count on income at least twice the poverty rate. This improvement came primarily because of the growth of Social Security wealth, not because of increased savings or because of a big showing by investments such as 401(k)s.

In fact, the study found that median-income households headed by someone between the ages of 56 and 64 had over four times as much Social Security wealth as private pension wealth to sustain them in retirement.

The growing trend of shifting retirement income from defined benefit pensions to private account-based plans has actually put a dent in the financial prospects of middle-income households with members nearing retirement. At the height of the privatizing trend and even with a rise in the stock market, private pension wealth declined from 1989 to 2001 for the median household in the 56-to-64 age group.

Despite the rise in stock market prices and the increasing value of family homes, the growth in income from Social Security has contributed by a count of 3-to-2, the increase in income derived from private investments and other property for middle-income households. “Social Security continues to be the bedrock on which most families are building their retirement,” said Wolff. “This remains true even in the midst of a historic run-up in housing values and a growing national focus on the aging of the baby boomers.”

Aside from contributing to the income of retired workers, Social Security is an important source of financial stability for disabled workers. The total Social Security benefit for disabled workers amounts to an average of $353,000 over that person’s lifetime.

The report further documents the importance of Social Security as the major source of retirement wealth for retiring people of color and single female-headed households. While these demographic groups shared the greatest financial difficulties in retirement, their retirement wealth grew dramatically in the period under study. This growth resulted mainly from increases in Social Security benefits.

The report also focused on the continuing wealth gap by race that hurts retiring minority workers. According to the study, the ratio of net worth of white workers aged 47 to 64 is well over 5 to 1 that of minorities. This fact contributes to a disparity in retirement wealth of up to 2.5 times for retiring whites.

While these numbers reflect a slight closing of the retirement wealth gap by race, the authors of the report show that the closure of the gap is due mainly to the growth of Social Security income not private account-based income.

Retirement wealth for whites grew by 34% and for minority retirees it grew by 122%. In the period of the study, retirement wealth from Social Security for minority retirees grew 49% for workers between the ages of 47 and 55, while their private pension wealth declined by 2%. Minority workers between 56 and 64 saw their retirement wealth from Social Security grow three times faster than their private-based retirement wealth. For minorities aged 65 and older, Social Security wealth grew by 129% and their private retirement wealth shrank by 7%.

The authors of the report argue that their findings show that private-based retirement plans have a poor record in providing for the needs of middle and lower-income workers. In fact, “The many ways in which Social Security has proven superior to private retirement benefits,” the authors insist, “should give pause to those who want to carve up Social Security through privatization.”



--Joel Wendland can be reached at jwendland@pliticalaffairs.net.