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.
- The employment patterns of women, characterized by fewer years in the labor force, lower earnings, and more frequent job changes, translate into lower Social Security benefits.
- The dual‐entitlement rules of the system often impose a penalty on wives and widows of two‐earner couples.
- The loss of up to 50 percent of a couples benefit at the husbands death throws every fifth widow into poverty.
Those outcomes are exacerbated by womens 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
- Virtually all women would be better off (most significantly) under a system of individually owned, privately invested accounts than under the current Social Security system.
- A fully privatized Social Security system with earnings sharing between spouses provides greater benefits to women than does a partially privatized, two‐tiered system.
- Contributions to personal accounts could be reduced to as little as 7 percent of covered earnings and still provide all categories of women (single, divorced, married, widowed) with significantly higher retirement benefits than does Social Security. That would allow the remaining 5.4 percent of the current payroll tax to be used to provide disability benefits, help finance transition costs, protect against market risk, or even provide a tax cut at some point in the future.