Commentary

Privatization: A Pro-Woman Reform

By Carrie Lips and Darcy Ann Olsen
August 7, 1998

We envision a world where women’s equality and women’s empowerment to determine our own destiny is a reality.”

This quote from the National Organization of Women’s 1998 Declaration of Sentiments is especially relevant to the debate over Social Security. How would women fare under a privatized retirement system? In fact, not only would a system of personal retirement accounts promote women’s “equality” and “empowerment,” but virtually every woman would be significantly better off with personal retirement accounts — whether she is rich or poor, single or divorced, married or widowed.

Currently, a single woman earning $24,000 annually can expect to receive $900 per month in Social Security retirement benefits. If she were allowed to redirect 10 percentage points of her FICA tax into an investment-based retirement account, she could expect to retire with twice that amount: roughly $1,800 per month. Married women benefit from privatization, too. For example, an average-income married woman who has taken time out of the workforce could expect to get three times more retirement income than Social Security can provide.

Moreover, a system of personal retirement accounts would end the discrimination against women that pervades Social Security. Under current law, the program takes billions of dollars from working women but gives them nothing in return. The culprit is something called the dual-entitlement rule, which allows a woman to receive benefits on the basis of her own work record or her husband’s work record — whichever is greater. Because the typical woman earns less and works fewer years than does her husband, her spousal benefits are often larger than the benefits she earned in her own right. Consequently, she receives benefits based on only her husband’s earnings — and no credit or benefits based on the payroll taxes she has paid. A wife who never worked at all can receive exactly the same benefits as a woman who has worked her entire adult life.


Private accounts will eliminate the government’s discrimination against working women. At the same time, private accounts will give women financial security in retirement — today, a luxury for only a privileged few.


Defenders of the status quo often claim that it’s risky for women to have investment-based retirement accounts — after all, they are heavily dependent on Social Security income in retirement and are less experienced investors than men. Those concerns are not unfounded: women do rely heavily on Social Security for retirement income. But that is precisely why reform is needed. Social Security benefits are often inadequate. Even with Social Security benefits, 38 percent of nonmarried elderly women subsist at or just above the poverty line. Women are less likely than men to have private pensions or other forms of savings; therefore, they need to get their money’s worth from their payroll taxes.

For every dollar a single woman puts into Social Security, she will get one dollar back. In contrast, for every dollar she puts into a personal retirement account, she will receive $2. What woman in her right mind would choose to pay $40 for a pair of shoes when she could purchase an identical pair for $20?

The concerns about women’s ability to invest smack of sexism and rely heavily on misinformation. With every passing year, more and more women are investing in the market, and women are starting to save for retirement at younger ages. Nearly three-fourths of the women between the ages of 25 and 34 surveyed by the Profit Sharing/401(k) Council of America started saving before age 30. More than 60 percent of women consider themselves knowledgeable investors.

Of course, private accounts hardly require that every worker become a financial expert. Personal retirement accounts would be similar to 401(k) plans or IRAs: individuals could select from various funds managed by a qualified investment institution.

Moreover, almost all personal retirement account proposals provide a guaranteed safety net and many give women the freedom to choose whether to place 10 percent of their income in investment accounts or stay in the current system. But anti-privatization forces oppose this option. Instead, they argue that women must stay in the current system for their own good, as if they were incapable of saving and planning for their retirement. Apparently, we can bear children and become CEOs but are incapable of providing for our own retirement needs.

Private accounts will eliminate the government’s discrimination against working women. At the same time, private accounts will give women financial security in retirement — today, a luxury for only a privileged few. Most important, a system of personal retirement accounts would be an important step toward “a world where women’s equality and women’s empowerment to determine our own destiny is a reality.” Indeed, privatization is a pro-woman reform.

Darcy Olsen is an entitlements policy analyst at the Cato Institute and Carrie Lips is the assistant to Cato’s Project on Social Security Privatization.