How Does Social Security Affect the Racial Wealth Gap?



The large and persistent gap by race in U.S. household wealth is a well-established empirical fact, though the causal mechanisms for wealth differentials are still a subject of much debate. Previous research on wealth inequality has shown that expanding the concept of wealth to include Social Security reduces overall wealth inequality (Sabelhaus and Volz, 2022a). These two observations motivate the questions and empirical approach in this study. Focusing on individuals born between 1936 and 1965 and observed at ages 51 to 56 in two household data sets, I first study wealth ratios and wealth rankings by race using conventional household wealth measures, and then study the implications of expanding the wealth measure to include Social Security. In the wealth measures excluding Social Security there is 23 percentage-point average wealth rank gap between Black and White individuals, and that falls to 13 percentage points after controlling earnings and other observables. Adding Social Security reduces racial wealth gaps, but also draws our attention to the fact that resolving expected Social Security funding shortfalls could have first order implications for wealth inequality and the racial wealth gap. Adding Social Security does not impact wealth rank gaps by race, however, which reinforces the need for further research on differences in wealth accumulation dynamics.

Key Findings

  • Although the Health and Retirement Study (HRS) and Survey of Consumer Finances (SCF) collect household wealth data in different ways, the data sets are in general agreement about levels and trends in racial wealth gaps as measured using the ratio of White to Black wealth. Focusing just on individuals between the ages of 51 and 56 born between 1936 and 1965, the data sets show estimated ratios of White to Black wealth that hover around 5.
  • The literature on racial wealth gaps tends to focus on means and medians, and the analysis here extends that further up the wealth distribution. Wealth at the 75th and 90th percentiles for Whites and Blacks separately are more similar than at the mean or the median, but the racial wealth gaps are still substantial.
  • Analyzing the racial wealth gap using standard wealth measures is problematic for the bottom half of the wealth distribution. Conventionally measured wealth includes the market value of homes, vehicles, retirement accounts, other financial assets, and businesses. That measure of wealth is only positive for individuals near and above the middle of the wealth distribution. Indeed, median wealth holdings for Blacks tend to hover just above zero, leading to large swings in estimated wealth based on macroeconomic factors like house prices.
  • However, the HRS and SCF data sets agree that the estimated ratios of White to Black wealth holdings are rising over time at every point in the wealth distribution. That is, in addition to rising overall wealth inequality, racial wealth gaps are getting larger.
  • The HRS and SCF data sets are even closer in terms of a new measure of racial wealth gaps introduced here, based on wealth-rank percentiles. Both data sets show that the average wealth percentile rank for Whites is close to 53, while the average wealth percentile rank for Blacks is 30, for a gap of 23 rank percentage points.
  • Focusing on individuals between the ages of 51 and 56 born between 1936 and 1965, the HRS and SCF data sets also agree that about half of the racial wealth rank percentile gap can be explained by racial differences in earnings, education, marital status, and sex. The other half of wealth rank percentiles remains unexplained and should be the subject of future research.
  • Expanding the measure of wealth to include Social Security wealth (SSW) substantially reduces the levels of racial wealth gaps as measured by ratios of White to Black wealth across the wealth distribution, but it does not affect the conclusion based on wealth rank percentiles.
  • This apparent anomaly is really about the question being asked. Ratios of White to Black wealth at various points in the wealth distribution tell us about levels of economic resources. The fact that Social Security plays such a large role in the retirement resources for all low lifetime earners (who are disproportionately Black) simply acknowledges that half the population is in fact not entering their retirement years with zero accumulated wealth.
  • The wealth rank percentile analysis answers a different question. If we compare a Black and a White individual with the same lifetime earnings percentile rank, education, marital status, and sex, we see the Black individual is lower in the wealth percentile rank distribution. The obvious question for future research is why those unexplained wealth rank differentials exist.


Sabelhaus, John. 2023. “How Does Social Security Affect the Racial Wealth Gap?” Ann Arbor, MI. University of Michigan Retirement and Disability Research Center (MRDRC) Working Paper; MRDRC WP 2023-459.

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WP 2023-459

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Working Paper

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