Latinos May Hold Key to Future of Social Security

The Social Security system, says the conservative Heritage Foundation, is a bad bargain for just about every American of working age. And for no ethnic group does Social Security promise so meager a retirement package as for the nation’s Latino population.

The reason, say experts from Heritage and elsewhere: Latinos as a group are younger than the rest of the population. They bear a disproportionate share of the payroll tax burden, which supports today’s retirees. And at least for the next couple of decades, this inequity will only grow.

As society changes, “the population will be one in which an increasing number of elderly Anglos may be dependent on young minority populations,” according to “America Challenged,” a book by Steve H. Murdock, chief demographer for the Texas State Data Center.

Latinos may be able to turn this situation to their political advantage. Without their support, the entire Social Security program--a pay-as-you-go system, with current workers paying the benefits for current retirees--could founder.

And Heritage thinks it has just the way to secure Latinos’ loyalty to Social Security. It would let them divert at least some of their payroll taxes into personal investment accounts that would be retained for their own use at retirement.

A married Latino couple with an average income during a 40-year working life, Heritage says, could expect to collect $767,000 in retirement payments from a portfolio divided between stocks and Treasury bonds if the payroll tax could be invested privately. The total would dwarf the $420,000 the couple would receive under today’s formula for Social Security benefits.

But what about the risks, counters Rep. Xavier Becerra (D-Los Angeles), chairman of Congress’ Hispanic Caucus. He remembers how his parents’ first foray into the investment world ended--in disaster. They lost $2,500 on a real estate deal and another $600 to pay a lawyer who could not get their money back.

“Private investing doesn’t necessarily translate into something great,” he warned. “My parents were promised a return of 15%. But they lost a significant portion of their savings. A lot of folks like my parents could suffer the same consequences. I like the stability and security of the current system.”

These clashing views represent the extremes of a debate that is especially urgent for the nation’s Latino population, which is increasing faster and is younger than the rest of the country. How Latinos, whose numbers are expected to jump from 10% of the entire population to 21% by the year 2050, come down on the Social Security debate will be vital in determining the system’s future.

Aging of Boomers Prompts Debate

What is prompting the debate is the aging of the 76 million baby boomers. By the year 2029, when virtually all the boomers will have turned 65, payroll tax revenues will be sufficient to pay just 75% of promised benefits.

The key political questions will be whether the system should be maintained with modifications--such as increased taxes, reduced benefits or an increase in the retirement age--or whether the country should make a major shift in Social Security and permit people to divert some of their payroll taxes to individual retirement accounts.

President Clinton has proclaimed 1998 as a year for debate and discussion about Social Security, with 1999 as the year for bipartisan action.

The debate is heating up.

Many “ordinary Americans already understand that the Social Security system is a bad deal,” according to the just-completed Heritage Foundation report on Latinos and Social Security, which was made available to The Times.

“For almost every type of worker and family, retirement under Social Security means receiving fewer dollars in old age and passing on less wealth to the next generation than they could if allowed to place their current Social Security tax dollars in private retirement investments,” said the report by Heritage scholar William W. Beach. He analyzed income and life expectancy figures for Latinos to produce the study.

But looking at Social Security exclusively as an investment is wrong, say defenders of the current system.

“It is not just a private pension. It is a social insurance program with goals that go beyond the rate of return,” Social Security Commissioner Kenneth Apfel said. Disability benefits are paid to more than 6 million workers and their spouses and children, while 7 million survivors--widows, widowers and children of deceased workers or retirees--also receive checks.

Under Social Security, the government bears the risk of making good on the promises of protection against the economic hazards of old age, disability or death. With private accounts, the risk presumably would shift to individuals.

Each Side Woos Minorities

Murdock, of the Texas State Data Center, estimates that the white majority’s share of the nation’s total labor force will decline sharply to 55% in the year 2050, down from 78% in 1990. Latinos will account for 21% of all workers, a dramatic increase from 8% in 1990. Blacks will constitute 13% of the work force, up from 10%. And the Census category “other,” which includes Asians, Pacific Islanders and Native Americans, will climb to 11%, up from 3%.

Heritage and other advocates of so-called privatization--the short-hand word for converting Social Security into individual accounts--are making special efforts to reach younger workers and minority groups.

“It is vital to engage the Latino community, the youngest major population group in the country, in a conversation about the future of retirement issues,” said Jennifer Loukissas, the development director for Third Millennium, a group of activists in their 20s and 30s who support privatization.

With backing from the brokerage firm Paine Webber, the consulting firm Ernst & Young, and Prudential, the Third Millennium organization hosted a meeting last year for 20 leading Latino groups “to bring this issue to the radar screen of the Latino community,” Loukissas said.

The response was skeptical and cautious.

“We have a long way to go before we can conclude that privatization is the right solution,” said Thomas Saenz, the Los Angeles regional counsel for the Mexican American Legal Defense and Education Fund.

“We’re still very much in the information-collecting and analysis mode,” said Charles Kamasaki, vice president of the National Council of La Raza, a civil rights organization. He noted the enormous costs that would be faced if the country allowed workers to switch their Social Security payroll taxes into private, individual accounts. (The benefits promised to current workers represent $9 trillion that must be funded through taxes or borrowing.)

Despite the criticism, the Heritage report does a welcome service by “raising the issue and acknowledging that minorities have a stake in the debate,” said Fernando Torres-Gil, associate dean at the UCLA school of public policy and a former federal assistant secretary for aging in the Department of Health and Human Services. Minority organizations had not paid much attention to Social Security because they were busy with more immediate issues, such as education, health care, crime and affirmative action, he said.

Social Security Called Vital

Young minority workers should be concerned about getting maximum rates of return on investments, “a laudable goal,” Torres-Gil said, but they must remember the vital help Social Security provides to the elders in their community.

“Neither the average older black nor the average older Hispanic household has any financial wealth at all--not a dime,” according to a study on wealth among households over 70 by James H. Smith of the Rand Corp. think tank in Santa Monica.

“Social Security is the most effective program in our national history,” said Rep. Ciro D. Rodriguez (D-Texas), who presided over a town meeting on Social Security at an event in his San Antonio district and is planning two more meetings on the subject. “I would be real cautious about changing a structure like that. My dad worked 30 years in a meat packing company, for a major corporation. He didn’t get a pension. The only thing he had at the end was Social Security.”

Heritage and other supporters of private investment accounts see the potential use of Social Security payroll taxes as the only chance for many minority families to build up wealth. That is why “we’re trying to encourage people to focus on the rate-of-return question. That is what we think will move this debate,” Beach said.

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Changing Working Age Population

Percentage of Work Force by Ethnic Groups

1990 total population: 124 million

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Anglo Black Hispanic Other* 1990 78% 10% 8.0% 3% 2000 71.6% 12.3% 11.1% 5.0% 2010 67.7% 12.8% 13.2% 6.3% 2020 63.9% 13.3% 15.2% 7.6% 2030 60.1% 13.8% 17.2% 8.9% 2040 56.3% 14.4% 19.2% 10.1% 2050 55% 13.0% 21.1% 11.2%

*--*

2050 total population: 179 million

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Percentage of Elderly by Ethnic Groups

1990 total population: 31 million

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Anglo Black Hispanic Other* 1990 86.7% 7.9% 3.7% 1.7% 2000 83.9% 8.0% 5.4% 2.7% 2010 80.8% 8.2% 7.2% 3.8% 2020 77.9% 8.7% 8.9% 4.5% 2030 74.6% 9.2% 11.1% 5.0% 2040 70.3% 9.3% 14.4% 6.0% 2050 6.0% 9.6% 17.5% 6.9%

*--*

2050 total population: 79 million

* “Other” includes Asians, Pacific Islanders and Native Americans

Source: Census Bureau