SSP No. 12 July 20, 1998

Social Security

The Benefits of Social Security Privatization for Women

by Ekaterina Shirley and Peter Spiegler

Ekaterina Shirley and Peter Spiegler are graduate students at the John F. Kennedy School of Government, Harvard University.

Executive Summary

The economic case for privatization as a response to Social Security’s insolvency problems has been made extensively in the academic and policy literature. How privatization would affect various social groups, however, has remained largely unaddressed. There are reasons to be especially concerned about the impact of reform on women. Women are known to be disproportionately dependent on Social Security benefits in their old age and because of longer life expectancy and employment patterns, an elderly woman is twice as likely to be living in poverty as is an elderly man.

Although the Social Security system is gender neutral on its face, it produces some financial outcomes that place women at a disadvantage in retirement compared with men.

Those outcomes are exacerbated by women’s disproportionate dependence on Social Security benefits. As a result of low private asset accumulation and inadequate or absent supplementary pension coverage, on average, nonmarried women over 65 rely on Social Security for 72 percent of their retirement income. Forty percent of that group rely on Social Security for 90 percent or more of their retirement income.

Contrary to some criticisms raised in the course of the Social Security reform debate, our analysis demonstrated that privatization of Social Security in fact would offer tangible financial benefits to women. If higher rates of return are realized on investments in the private capital markets, privatization is likely to boost the retirement savings of both men and women. Indeed, this study finds that

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