This report examines how potential enhancements to Social Security could reduce disparities in benefit payments along racial and ethnic lines and promote financial security at older ages. We simulate the impact of several possible Social Security changes, all of which have been included in recent prominent Social Security plans. 

The benefit enhancements we model include making the benefit formula more progressive, adding a new minimum benefit, providing Social Security credits to people who spend time caring for young children, improving survivor benefits, boosting benefits for long-term beneficiaries, increasing benefit levels across the board, and eliminating federal income taxes on Social Security benefits. 

Why This Matters

Social Security, the nation’s largest federal program, provides crucial cash benefits to retired workers, people with disabilities, and their families. Program benefits depend largely on how much workers and their spouses earn over their lives and contribute in payroll taxes. Because structural racism limits employment and earnings opportunities for workers of color, many Black and Hispanic adults receive only limited Social Security benefits, threatening their financial security in retirement or after they develop disabilities. Enhancing Social Security benefits could offset some of the disadvantages that Black and Hispanic workers face in the labor market and increase their retirement and disability benefits.

Key Takeaways

Black and Hispanic adults receive much lower annual and lifetime Social Security benefits than white adults. Various benefit enhancements could reduce these racial and ethnic gaps in Social Security benefits, but none of the options we consider would come close to eliminating the gaps, and some adjustments would increase them.  

• We project that average lifetime Social Security benefits received by adults born between 2001 and 2010 are 19 percent less for Black beneficiaries than white beneficiaries and 14 percent less for Hispanic beneficiaries than white beneficiaries.  
• In 2080, 18.4 percent of Black beneficiaries and 18.0 percent of Hispanic beneficiaries are projected to receive annual Social Security benefits that fall below 125 percent of the FPL, compared with only 8.4 percent of white beneficiaries.
• Making the benefit formula more progressive would narrow Social Security disparities more than the other options we consider. Black and Hispanic beneficiaries would disproportionately gain from a change in the benefit formula that raised the share of the first dollars of lifetime earnings that Social Security replaces during retirement or disability and reduced the share of the last dollars of lifetime earnings replaced. However, that change would close only 19 percent of the lifetime benefit gap between Black and white adults born between 2001 and 2010 and 21 percent of the benefit gap between Hispanic and white adults.
• Eliminating income taxes on Social Security benefits and providing an across-the-board increase in Social Security benefits would increase the racial and ethnic equity gap and significantly worsen Social Security’s long-run finances.
• The effectiveness of benefit enhancements depend crucially on how those adjustments are structured.  Policy details, including eligibility for the enhanced benefit and the presence of any benefit caps, shape how much low-income beneficiaries would receive and how well targeted the adjustments are. Restricting eligibility for a new minimum benefit to adults with long careers would substantially reduce its impact because relatively few beneficiaries receiving limited benefits worked 30 or more years.
• Achieving equity in Social Security benefits for Black and Hispanic adults would likely require substantial progress toward equality in labor market outcomes.

How We Did It

Using the Urban Institute’s Dynamic Simulation of Income Model 4 (DYNASIM4), we project future Social Security benefits and family income under current law and various program changes that would boost benefits. Because the details of each proposed benefit adjustment shape its effectiveness, we model several iterations of certain adjustments. 

Our analysis assumes that benefits scheduled under current law and under each option will be paid in full, despite the program’s long-term financing shortfall.  To capture the fully phased-in impact of each option, we project annual outcomes in 2080 and lifetime outcomes for adults born between 2001 and 2010.

For each scenario, we project lifetime Social Security benefits, the share of beneficiaries receiving limited annual benefits (defined as benefits that fall short of 125 percent of the federal poverty line), and the share with limited annual income (defined as family income that falls short of 25 percent of the national average annual wage). We also compute the impact of each benefit enhancement on Social Security’s 75-year unfunded liability.