By Rodney A. Brooks
Deciding when to take Social Security is a huge issue, and a very complicated one. A wrong decision can cost you hundreds of thousands of dollars over your lifetime. That decision can be critically important for African Americans.
You need a plan for retirement that includes at least some savings other than Social Security.
First, a couple of facts.
• Three quarters of minority beneficiaries rely on Social Security for at least half of their retirement income. That’s true for only half of whites.
• 45 percent of African Americans relied on Social Security for 90 percent of their income compared to only 29 percent of whites.
• A third of Black Social Security recipients depend on Social Security for all of their income, compared to 16 percent of whites. Keep in mind that the average Social Security check in 2022 is only $1,614.
If nothing else, these numbers should point out that before deciding on Social Security, you must have a plan.
Here’s the basics. The earliest you qualify for Social Security is 62, and 37 percent people take it at that age. The problem is that by taking it early, instead of waiting for full retirement age, you lock in a 30 percent reduction in your benefits for life. Every year you wait between 62 you’re your full retirement age your benefit will increase by 8 percent. (Full retirement age is 66 if you were born between 1943 and 1954. It increases gradually until it reaches 67 for anyone born after 1960.) If you wait until 70 you can increase your benefits another 30 percent.
But let’s not kid ourselves. There is a reason most Black Americans take Social Security early and lock themselves into those lower payments for life.
Health disparities. Black Americans suffer higher rates of eight of the top 13 top causes of death in the United States – heart disease, stroke, cancer, influenza and pneumonia, diabetes, HIV disease, kidney failure and homicide, said Dr. Ebony Hilton, anesthesiologist at the University of Virginia in Charlottesville, Virginia. They often are forced to retire early for health reasons – either their own issues or to take care of a loved one with health issues. This is especially true of Black women, who are more much more likely to be caregivers than Black men, and also more likely to be the lone caregiver.
Wage disparities. Black Americans are locked into low-paying service jobs, and your Social Security check depends on the amount you pay into the system. On average, Black Americans earn about half as much as White Americans. But when it comes to Social Security, the more money you make, and the more you put into the system, the higher your monthly check when you retire. Low wage earners put less into the system and are stuck with considerably lower Social Security benefits as a result.
Still, there are steps you can take to make sure you are not entirely dependent on that Social Security check when you retire.
- 401(k). Company pensions are pretty much gone. Instead, companies off employees self-directed defined contribution plans like 401(k)s and 403(b). The problem is too many people say they can’t afford to save and don’t contribute. If your employer offers at 401(k) or 403(b), utilize it. Find the money, even if it’s $25 or $50 a month. The money adds up. And if there is an employee match, you should contribute at least up to that match. Otherwise, you are passing up free money.
- Individual Retirement Account. If your job doesn’t offer a 401(k), start an IRA. You can do that with any online brokerage or mutual fund company like Vanguard or Fidelity. You can start an IRA with as little as $25 a month.
- Invest in mutual funds. Just as with IRAs, you can open an investment account in an online broker like Charles Schwab or Fidelity for a small initial deposit and automatic deposits of $25 or $50 a month. Avoid stocks. Focus on mutual funds. You’ll be amazed at what happens when you tap into the growth of the stock market. It is proven that stocks provide the best long-term return of any investment, including real estate.
- Reverse mortgage. I’m not a big fan of reverse mortgages, unless there is no other option. Considering the dire state of Black homeownership, we want to leave a legacy for our heirs. But if there is no other option, a person can tap into the equity in their homes and receive payments until they die. Then, generally the house is sold and whatever equity is left goes to your heirs. Before you do a reverse mortgage, make sure you get some financial advice from a pro.
The point is that you have options – if you think about retirement when you are still young enough to make a difference in your future. Or you can sit back and wait for Social Security to kick in. But that may mean a dramatic reduction in your lifestyle or being forced to work into your 70s or 80s.
Rodney A. Brooks is a Texas Metro News Columnist and Senior Fellow at Prosperity Now. The author of Fixing the Racial Wealth Gap: Racism and discrimination put us here, but this is how we can save future generations, he has written for USA TODAY, The Washington Post and National Geographic.