Briefing Paper No. 38

Greater Financial Security for Women with Personal Retirement Accounts

By Darcy Ann Olsen
July 20, 1998

Executive Summary

As privatizing Social Security becomes more likely, people are raising questions about how women would fare under a new system. Would poor women be able to weather market downturns? Would they be capable investors? What about women’s aversion to risk?

Although the current Social Security system does not differentiate between men and women, on average, women receive lower benefits than do men because women tend to have lower wages and fewer years in the workforce. Thus poverty rates are much higher among elderly women than elderly men. While Social Security alleviates some poverty, there is room for improvement. Virtually every woman would be better off financially under a system of fully private, personal retirement accounts with earnings sharing.

Since the success of privatization is sensitive to the contribution rate, the greater that rate, the greater the benefits. Thus, a fully private system would benefit women more than a partly private two-tiered system.

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Darcy Ann Olsen is an entitlements policy analyst at the Cato Institute.