• SUPPORT CATO
• FOR STUDENTS
• FOR MEDIA
• FREE NEWSLETTERS

• HOME

• ABOUT

• BLOG

• BOOKSTORE

• EVENTS

• EXPERTS

• MULTIMEDIA

• PUBLICATIONS

Books

Reviews & Journals

Public Filings

Policy Studies

Opinion & Commentary

• RESEARCH AREAS

• SPEAKERS BUREAU

• SUPPORT CATO

To: Those Interested in Social Security Reform

by Andrew Biggs

This article appeared on Cato.org on May 9, 2002.

PRINT PAGE

CITE THIS

  Sans Serif

  Serif

A new report from the Older Women's League (OWL) argues that women would be hurt by Social Security reform incorporating voluntary personal retirement accounts. That is not the case.

Women are more dependent on Social Security than men, making them more vulnerable to the current program's projected insolvency and the more than 25 percent cut in benefits that would, by law, follow. Moreover, Social Security's benefit formula disadvantages many women, particularly working women, single women and divorcees.

Social Security reform proposals incorporating voluntary personal accounts, including those put forward by the President's bipartisan reform commission (www.csss.gov), make Social Security solvent over the long-term and help address the quirks in the benefit formula that harm many women. Low-wage workers, including many women, would receive higher total benefits than the current system even promises, much less can actually afford to pay. Moreover, under the President's commission's plans, current and near-retirees have their benefits fully guaranteed. No one over age 55 would see any changes to their benefits, including annual cost of living adjustments (COLAs).

Why women need Social Security reform

• While touted by OWL as having "unmatchable protections," the current system taxes away an eighth of a woman's wages and still allows millions of women to retire into poverty, 11.8 percent in all (vs. 6.9 percent for men). Widowed, divorced or nevermarried women face particularly high poverty rates: 16.8 percent for widows over age 65, and 24.7 percent for divorced, separated or never-married women over 65.
• Poverty rates could increase even more under the current program. Experts like the Urban Institute's Karen Smith predict that "elderly poverty rates may increase dramatically for the less educated and those who never married."
• Non-married women over 65 rely on Social Security for an average of 50 percent of their retirement income. Thirty-eight percent of unmarried women rely on Social Security for 90 percent or more of their retirement income. Women are particularly threatened by the benefit reductions that will occur in the absence of reform (a 25 percent reduction in 2041).
• Social Security contains several quirks that hurt working women. Almost two-thirds of working women receive no additional benefits for the taxes they contribute, and a low-wage single woman who worked and contributed her entire life actually receives lower monthly benefits than a non-working spouse from a high-income household.

How personal account plans help women

• Under proposals from the President's Commission to Strengthen Social Security, all workers and retirees over age 55 would be completely protected from any benefit changes, including annual cost of living adjustments (COLAs). Current retirees and near-retirees would see no changes whatsoever.
• Younger workers could voluntarily invest part of their payroll taxes in a personal retirement account holding approved, diversified investments. The commission's reform proposals would pay all workers higher total benefits than the current system can afford to pay. Low-wage workers — who are predominantly female — could expect to receive more than the insolvent system even promises. For instance, a low-wage woman retiring in 2042 under one of the commission's proposals would receive $986 per month (in $2001), which is $330 more than the $654 Social Security could afford to pay her and $90 per month more than Social Security even promises.
• Commission proposals guarantee that minimum-wage workers do not retire into poverty, lifting up to one million seniors out of poverty, according to Social Security's actuaries.
• Commission proposals also increase benefits for below-average-wage widows. Under the current system, a widow receives just 50 to 66 percent of the couple's former benefit. Commission proposals raise the widow's benefit to 75 percent, increasing benefits for as many as two to three million widows, according to Social Security's actuaries.
• Under the current program, a woman who is divorced prior to 10 years of marriage has no right to benefits based on her husband's earnings. Marriages ending in divorce have a median length of just 7 years, and fully one-third of all marriages end prior to the 10 years needed for benefit eligibility. The commission proposals mandate that account contributions be split evenly between spouses in the case of divorce. If married to an average wage male, this provision could increase a divorced woman's monthly retirement income by $55 to $215.
• Personal accounts would give all workers a true legal right to their Social Security benefits and would prevent the government from "raiding" Social Security to pay for other programs. Workers dying prior to retirement could pass on their accounts to their children, heirs, or a chosen charity.