February 6, 2001

February 6, 2001 | WebMemo on Social Security

Women and Social Security Reform

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A number of women's organizations opposed to strengthening Social Security claim that reform would hurt women. These groups oppose allowing workers to have the choice of staying in the current Social Security or opening a Social Security personal retirement account. However, the facts show that the anti-reformers are wrong.

Americans have come to realize that Social Security faces serious financial problems that are only going to get worse. This public concern is well grounded. Studies and official reports confirm that Social Security is approaching a major financial crisis, and even if its revenue and expenditures were in long-term balance, the program is providing poorer and poorer retirement income security for the money Americans contribute. Younger workers are especially aware that Social Security will not be able to provide the benefits they have been promised when they retire.

When anti-reformers say:

  • Fix it, don't scrap it…especially don't "fix it" with a scheme that would destroy the intent of the program which is to provide a foundation of retirement/disability and survivor insurance. With 40% of recipients receiving survivor or disability benefits this program is the heart of our social insurance program.

The facts say:

  • No one wants to scrap Social Security, indeed we want to strengthen the program. However, unless changes are made soon, it may not be able to provide the same level of benefits to our children and grandchildren as it paid to our mothers and grandmothers.

  • Reform is about giving people choice. It is very simple to save and improve Social Security's retirement and survivors programs without making any changes to today's disability program. Under reform, women would have the choice of remaining in today's Social Security or moving into a Social Security Part B, which includes a combination of government funded benefits and a personal retirement account. This is not a new or revolutionary idea. Social Security systems with personal retirement accounts exist in Great Britain, Australia, Sweden, Hungary, Denmark, Mexico, Chile and a host of other countries. In each case, the reformed strengthened the nation's social insurance system.

When anti-reformers say:

  • Social Security will be able to pay 100% of benefits until 2034 and 75% after that! Modest, prudent changes will be enough to strengthen Social Security for the future so it can continue to "never miss a paycheck".

The facts say:

  • The Social Security Administration, Fed Chairman Alan Greenspan, former President Clinton, and many others say differently.

Social Security will face severe financial problems in less than 15 years that will plague it as far in the future as it is possible to estimate. These reforms significantly enhance a family's ability to leave financial assets to their children.

  1. The sad fact is that although the Social Security program will run annual cash surpluses beyond the end of this decade, the gap between what the government promises to pay in benefits and what it expects to collect in Social Security taxes is staggering and growing. Once the nearly 80 million Americans in the baby-boom generation begin to retire in little more than a decade, these surpluses will quickly be transformed into larger and larger deficits.

  2. By 2037, Social Security will be able to pay only about 74 percent of the benefits it has promised from its annual tax revenues. Even worse, Social Security's unfunded liability--the total amount that it has to pay over and above the amount that it will receive in future taxes--is about $21.6 trillion.

  3. These deficits will mount very rapidly. If Congress does nothing, annual cash flow deficits are predicted to begin in 2015. According to the Social Security Administration (SSA), in inflation-adjusted 1999 dollars, the annual deficits are estimated to reach about $21 billion in 2015, $252 billion in 2030, and $516 billion in 2070. It appears that the annual deficits will continue and grow in size for as long as analysts can project. In order to eliminate these deficits, Social Security taxes alone would have to rise to about 20 percent of income.

When anti-reformers say:

  • Several plans to deal with the so-called "crisis" translate into benefit cuts, raising the retirement age, and the removal of cost-of-living increases!

The facts say:

  • A responsible reform plan does not need to raise the retirement age or cut benefits. No responsible plan removes cost-of-living increases. In fact, the current system discriminates against minorities, including women, who receive a significantly lower rate of return.

When anti-reformers say:

  • It's all about RISK!! Social Security is a better investment than stocks or bonds, once average rates of return are adjusted for risk. Taking risk into account, Social Security has much higher return than any mix of financial assets in private accounts.

The facts say:

  • Women should have the choice of either staying in today's Social Security or joining a Social Security that includes personal retirement accounts. They should also have the choice of investment options. These options could include super-safe Series I United States Savings Bonds that pay 3.40 percent interest after inflation. This level of income would be almost double what younger women can expect to receive from today's Social Security. A 35 year old woman will only "earn" about two-thirds as much (2.03 percent) from today's Social Security, while her 15 year old daughter will only "earn" about half as much (1.57 percent).

When anti-reformers say:

  • With Privatization, some might do well, many might lose, but our society would lose the SAFETY NET of this social insurance program. When building financial security for the future, one needs guarantees. There are no guarantees in the Stock Market! Saving and investing is great but not at the expense of the one guarantee that has never missed a paycheck…Social Security.

The facts say:

  • Women could do better under Personal Retirement Accounts.
  1. Personal retirement accounts are safe and easy to manage. If they were structured similarly to the federal government employee's Thrift Savings Plan, they would offer three basic investment choices: a stock index fund, a corporate bond fund and a government bond fund. Any of the three would allow the owner to earn more than what Social Security pays on her current taxes. The Thrift Savings Plan is also very low cost, with annual fees equal to about 10 cents for every 100 dollars in the owner's account.

  2. It would be very simple to develop a personal retirement account plan that includes a safety net with the same guaranteed level of retirement benefits that today's Social Security promises. The difference would be that a reformed plan includes the assets to meet its obligations.

  3. Women could earn more for retirement with a personal retirement account. Allowing a 25 year old teacher with an annual income of $25,000 to invest an amount of her existing Social Security taxes equal to 2 percent of income would increase her retirement assets by almost 20 percent. She would have up to $60,000 more for retirement than she would under today's Social Security.

  4. A 35 year old public administrator earning $50,000 a year could have up to almost one-third more for her retirement. She would have up to $125,000 more if she was allowed to invest Social Security taxes equal to 2 percent of income in a personal retirement account. Half of her investments would be in super-safe government bonds and half in stock index funds.

When anti-reformers say:

  • Social Security is especially important to women:
  1. Women live an average of 7 years longer than men - increasing their chances of outliving their assets.

  2. Women have average lower lifetime earnings because of pay-inequity and time out of the workforce to care for family.

  3. Women are less likely to have pensions when they retire.

The facts say:

  • Today's Social Security is a bad deal for women.
  1. Social Security IS very important to women. Maintaining the current system would do little to help them, and in fact, do more to stifle any creation of individual or family wealth.

  2. In most cases, women receive little benefit from their husband's Social Security after his death. Social Security only pays survivors benefits if there are children under the age of 18, or if the widow receives lower benefits than her husband does. If Ethel receives $875 a month in Social Security benefits, and her husband Richard received $1266 when he was alive, Ethel can choose to receive either Richard's $1266 a month or her own $875. She also gets a one-time $255 death benefit. Assuming that Ethel chooses Richard's level, her Social Security "account" is marked "Paid in Full."

  3. If a wife receives either the same monthly Social Security retirement benefit as her husband, or a larger one than he did, all she gets is a $255 death benefit. Both Sue and her husband Ned taught school for many years. Both of them got monthly benefits of $1198 from Social Security. When Ned died at the age of 66, all that Sue got from his decades of paying Social Security retirement taxes was a one-time $255 death benefit.

  4. Because Social Security benefits are calculated using a worker's highest 35 years of earnings, women who spend more than a couple years out of the workforce caring for a family receive extremely low benefits. She receives no credit at all for years when she is not employed. Her benefits must be calculated using low paying early jobs in order to include 35 years of earnings. Because Irene spent 15 years caring full time for three children, her Social Security retirement benefits had to be calculated including a $3.50 an hour waitress job she held when she was 19. Her monthly benefits were extremely low.

  5. Numbers are even worse for African-American women. A 60 year old woman living in Chicago's South Side earns the equivalent of only 2.75 percent a year after inflation. Her 35 year old daughter would "earn" less than half that much (1.47 percent), while her 15 year old granddaughter will "earn" just over a third as much as grandmother does (1.01 percent annually).

  6. If these women had been able to invest their Social Security taxes half in government bonds and half in stock index funds, they could each have at least $250,000 more for retirement.

  7. A married woman with a good job whose husband dies before his retirement could receive a paltry $255 death benefit from Social Security and nothing more. The current Social Security program transforms taxes from current workers into income for current retirees. However, if a married worker dies before retirement and has no children aged 18 or younger, it is very possible that no benefits other than the burial fee will be paid to the surviving spouse.

  8. Today's Social Security is not fair to divorced women. The National Center for Health Statistics says that an average marriage lasts for just over seven years. However, the Social Security Act requires that a marriage must last for at least ten years before a divorced woman is eligible to share her former husband's Social Security retirement benefits. Even if a divorced woman stayed at home full time caring for children, she receives no retirement benefit from Social Security for those years if her marriage lasted less than ten years.

When anti-reformers say:

  • Social Security provides security for women and families because: it's guaranteed, you can't outlive it, and it keeps pace with inflation. Name a private investment plan that beats these!!

The facts say:

  • The standard should not be: A lifetime of work for minimal return. That's why a bipartisan coalition on Capitol Hill is willing to strengthen Social Security by allowing workers to place some of their payroll taxes in personal investment accounts.

  • While Social Security has helped past generations, it will not do as well for younger women. On average, a 60 year old woman will "earn" the equivalent of 2.97 percent a year on her Social Security taxes (after inflation). Her 35 year old daughter will only "earn" about two-thirds as much (2.03 percent), while her 15 year old granddaughter will only "earn" about half as much (1.57 percent) as her grandmother. By comparison, a Series I US Savings Bond earns 3.40 percent a year plus inflation - more than any of them would receive from Social Security.

  • Numerous studies show women achieving stronger roles and greater importance in the work force. Approximately 75 percent of that work force is guaranteed to pay more in Social Security taxes than they do in income taxes. And, this leaves them little or nothing to save or invest for their retirement. Allowing them to set aside 2% of their payroll tax to invest in personal retirement accounts that have a better rate of return will help build a "nest egg" for their retirement and the possibility of something left over to pass on to their children.

When anti-reformers say:

  • Let's set the record straight! Without Social Security, the poverty rate for women over 65 would be an astonishing 53%!

The facts say:

  • No one is talking about getting rid of Social Security! Let's get the facts straight. The problem that we face is preserving Social Security so that future generations of women are protected from poverty. Doing nothing and allowing benefits to be cut by 25% will increase poverty among women.

When anti-reformers say:

  • Social Security has significantly reduced poverty rates over the last 65 years and reforms can be done to strengthen the system to further reduce poverty. Scrapping a system with a proven track record makes no sense. Instead let's explore reforms that recognize the different earnings and life-patterns of women.

The facts say:

  • The best way to improve Social Security to recognize the different earnings and life-patterns of women is through including a personal retirement account.
  1. Over her lifetime, a woman's income will vary on average more than that of a man's. Spending time out of the workforce to meet family needs, moving with her husband to further his career, and the average pay gap between men and women doing similar jobs account for this difference.

  2. Under personal retirement accounts, it would be possible to even the incomes of a married couple so that a woman continues to build her account even while she remains at home raising children. Under income splitting, half of the husband's annual earnings would be credited to the wife's account each year. Equally, half of her earnings would be credited to the husband's account.

  3. Income splitting strengthens the family by allowing a married couple each to receive half credit for the combined family income. It helps to ensure that both will remain comfortable in retirement regardless of whether one partner stays home to meet family needs.

  4. Personal retirement accounts, especially if income splitting is incorporated gives a divorced woman security. It is her personal property, and money in the account continues to grow even if she remains at home raising children. She receives the same retirement benefit regardless of how long her marriage lasts.

When anti-reformers say:

  • Social Security: It's our program, our money, and our families' one guarantee!!

The facts say:

  • We agree. But for our children and grandchildren to enjoy the same benefits as our parents, reforms need to be made now. Chanting slogans makes one feel good, but it does nothing to save Social Security for future generations.

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