Mortality Differentials, the Racial/Ethnic Retirement Wealth Gap, and the Great Pandemic

The story that unfolds is that the standard net worth gap between Black and white households was much the same in 2007 as in 1983, though it did lessen considerably for Hispanics. The Great Recession hit minority families much harder than white ones, pushing the ratio of mean net worth between Blacks and whites down from 0.19 in 2007 to 0.14 in 2010 and that between Hispanics and whites from 0.26 to 0.15. The racial wealth ratio remained stuck at 0.14 up through 2019 while the ethnic ratio did improve to 0.19.

When the definition of wealth is expanded to incorporate Social Security and defined benefit pension wealth, the racial and ethnic wealth gap was sharply reduced. In 2019, the ratio between Black and white households in mean augmented wealth was 0.27 and that between Hispanics and whites was 0.32. The ratio of median wealth was boosted from about zero in the two cases to 0.39 for the former and to a whopping 0.48 for the latter.

Over time, from 1989 to 2019, the ratio of mean Social Security wealth between Blacks and whites climbed from 0.44 to 0.60 and that between Hispanics and whites from 0.48 to 0.76. In contrast, the ratio in mean augmented wealth between Blacks and whites was exactly the same in 2019 as in 1989. However, the ratio of median augmented wealth progressed from 0.24 to 0.39. The pattern is a little different for Hispanics. The ratio of both mean and median augmented wealth between Hispanics and whites advanced from 0.25 to 0.32 for the former and from 0.25 to 0.48 for the latter.

The COVID-19 Pandemic hit in 2020. Besides costing the United States one million plus lives, it lopped off over a quarter (26.7 percent) of Social Security wealth. Median Social Security wealth fell even more, 28.3 percent. The Pandemic effect was even stronger among young households – 29.4 percent and 30.6 percent, respectively. All told, mean augmented wealth dipped 8.1 percent among all households and 13.3 percent among young ones. The effect was even stronger on median values -- a 19.9 percent decline for the former and 27.4 percent for the latter.

The Pandemic reversed all of the absolute and relative gains made by minorities in terms of retirement and augmented wealth. It is first of note that the racial gap in life expectancy, which had declined from 6.2 years in 2006 to 4.8 years in 2019 for males and from 4.2 to 3.1 years for females, jumped to 7.0 years for the former and 4.5 years for the latter. The Hispanic-white gap went from 1.8 to 2.7 years in favor of Hispanics among males down to only 0.3 years in 2020 and from 2.3 to 3.1 years among females down to 2.2 years.

As a result, Black households saw their mean Social Security wealth fall by 29.1 percent.  The reduction was particularly acute among young Black households, with a falloff of 34.2 percent.  Hispanics were also hit very hard. Overall, mean Social Security wealth was down by 30.3 percent and 32.6 percent among younger households.

The Pandemic also enlarged the racial and ethnic gaps in retirement and augmented wealth. The Black-white ratio of mean Social Security wealth declined from 0.60 to 0.57 among all age groups and from 0.58 to 0.53 among the youngest group. The ratio of mean Social Security wealth between Hispanics and whites sank from 0.76 to 0.71 among all ages and from 0.83 to 0.78 for the youngest. Black households saw their mean augmented wealth down by 17.7 percent and median augmented wealth by 25.8 percent among all ages and 26.9 and 36.6 percent, respectively, among young Black households. Likewise, overall, mean augmented wealth was down by 17.2 percent and median augmented wealth by 28.0 percent among Hispanics and by 21.6 and 31.8 percent, respectively, among young Hispanics.

The Pandemic also widened the racial and ethnic gaps in augmented wealth. The Black-white ratio of mean values dropped from 0.27 before the Pandemic to 0.24 after it among all age groups and the ratio of median values from 0.39 to 0.35. Among the youngest group, the former fell from 0.31 to 0.26 and the latter from 0.42 to 0.35. The ratio of mean augmented wealth between Hispanics and whites tumbled from 0.32 to 0.28 among all ages and from 0.51 to 0.45 for the first age group. The ratio of median values showed an even steeper drop, from 0.48 to 0.42 among all ages and from 0.76 to 0.67 for the youngest.

A counterfactual experiment is also run for year 2019 in which white mortality rates are substituted for Black mortality rates and Social Security wealth recalculated. The substitution had a very modest effect on mean Social Security wealth calculated for all Black households, raising it by 10.4 percent. The impact was strongest among young households, 14.4 percent. It is calculated that 9.5 percent of the racial gap in mean Social Security wealth among all households was due to mortality rate differentials and 12.6 percent for the youngest group. The impact was stronger on median values.  The substitution enlarges median Social Security wealth by 10.8 percent among all Black households and by 15.3 percent for the youngest age group. It also raises the Black/white ratio of median Social Security wealth by 0.12 among all households. Moreover, 17.6 percent of the racial gap in median Social Security wealth among all households is found to be due to mortality rate differentials and 25.3 percent for the youngest group. However, still the biggest explanatory factor is the residual which reflects difference in earnings history and coverage rates.