The Breakdown | Explaining Southern California's economy

What will Latinos do if Social Security is revamped?


My colleague Leslie Berenstein Rojas wrote a great post today about Latinos and their impending retirement struggles. This part jumped out at me:

Latinos rely heavily on Social Security for retirement income. Many, especially first-generation immigrants, work in jobs that don’t provide retirement plans. And among those who do, there is a tendency not to invest in these plans, for fear of lacking day-to-day cash flow and other factors.

Several studies have addressed Latinos’ retirement quandary, but I’d like to resurrect a particularly exhaustive one from three years ago that took into account not just the prospective retirees, but their children who are one day expected to help support them.

She went on the delve into a 2008 report from the University of Notre Dame’s Institute for Latino Studies. But it’s the Social Security factor that’s important -- especially since Latinos are statistically more likely to live longer than several other ethnic groups. 

There are many ideas about how to fix Social Security, which is on a clear track for trouble in the coming decades. From MSNBC:

With more money flowing out and less money flowing in, and the baby boom generation hitting retirement age in force, the Social Security trust fund is expected begin shrinking by 2015. By 2037, the fund is projected to run out of cash, which means it could only pay out as much as it takes in. That would force immediate benefit cuts of about 25 percent if no changes were made before then.

Unless the program can be made to pay for itself, Congress would have to appropriate more than $13 trillion over the next 75 years to make up the shortfall, according to the Brookings Institution.

That’s a good example of an entitlement program that’s scheduled to go completely out of control. So what’s the fix? One change that’s almost sure to come is a hike in the retirement age. Again, MSNBC:

There are various proposals, but they all reflect the reality that life expectancy has risen since the program was created 75 years ago — and continues to rise. The age for eligibility already has risen to 67 for anyone born after 1960. Some proposals suggest moving the full retirement age to 70 and lifting the early retirement age for partial benefits — currently 62 — to 64 or 65. Others also include benchmarking future increases in the retirement age to advances in longevity.

No matter how you slice it, this means that Latinos will need to figure out what to do with the retirement years that are likely to be, wholly or in part, taken off the table for them. If they don’t begin to develop alternatives to Social Security, they’ll inevitably have to work longer.

And that’s not necessarily a bad thing, because it could encourage Latinos to take a harder look at long-term financial planning. There’s also a clear business opportunity here for reputable retirement-investment planners to market their services more aggressively in the Latino community -- and perhaps receive some backup from the Federal government, as well as state and local governments in California in particular.

 Photo: BLS