Knight-Ridder/Tribune Information Services - February 28, 2005
Myrtle Beach Sun News - March 6, 2005

Social Security Reform: Risky for Women

By Heather Boushey

President George W. Bush's new budget takes no account of the massive borrowing needed to fund private Social Security accounts because his plan for those accounts delays the costs until after he leaves office.

Trillions in budget deficits is just one cost of Social Security privatization; there will be personal costs as well. If we move to a privatized system and it fails, it will add the obligation of elder care to women’s responsibilities. Already, women are more likely than men to care for an aging parent. Without the security of an inflation-adjusted lifetime annuity, more retirees will have to rely on the generosity of their children, meaning more women will have to take on the added burden of elder care.

President Bush has proposed allowing workers to invest up to four percentage points of their Social Security tax dollars in private retirement accounts. This money could be invested in broadly diversified stock and bond funds, much like the 401k plans that many Americans already have. Upon retirement, a worker could either draw down their account over time or convert their savings into an annuity that would pay a guaranteed income stream for the remainder of their and their spouse’s (but not other dependents) lives.

The idea of this plan is that if a worker’s portfolio earns more than 3.3 percent per year—above inflation—they will see higher benefits than the traditional plan. However, if their returns are lower, their benefits will be reduced.

Under this President’s proposal everyone will see benefit cuts. For someone who is 35 today, those cuts are around 25 percent. Privatized accounts may offset some of these cuts, but returns would have to be exceptionally (absurdly) high to come close to offsetting the full cuts.

This proposed plan is risky and women have much to lose. Women account for almost 60 percent of elderly Social Security beneficiaries and this guaranteed income is what keeps most of them above the poverty line.

Women have less retirement security than men because of lower lifetime earnings, greater responsibility for children (and thus, more frequent breaks in labor force participation), and a lower likelihood of having a job with a pension.

At the same time, women disproportionately benefit from the present Social Security program because they live longer than men, and the progressive benefit structure transfers retirement income to low-earners.

The President’s proposed changes would not address these needs and concerns.

As currently structured, Social Security insures that workers have a minimal income for retirement, or if they became disabled and cannot work. Benefits are proportional to lifetime earnings, but the structure is progressive and those with low lifetime earnings receive larger benefits relative to their contributions. Survivor benefits guarantee that spouses and children will have income if an earner falls ill or dies.

Women—especially caretakers—benefit from this system. Women continue to be more likely to stop working to care for a child or ill family member. This leads to lower lifetime earnings: over a 15-year span, women’s earnings are 38 percent of men’s, according to the Institute for Women’s Policy Research. The causes are women’s shorter employment histories, as well as the fact that the earnings of full-time, full-year women are only 75 percent of men’s.

The current Social Security system also provides disability insurance and dependent benefits. Thus, women who rely on a husband for income are not destitute if something befalls him.

A privatized system does none of these things. Privatized accounts are based entirely on individual’s savings and returns, looking more like a 401k plan than a pension. When a mother takes time off to care for a child, she (and her family) forgoes not only her earnings, but also on the ability to put funds into her privatized account.

Further, a privatized system would be riskier for women because they tend to live longer than men. Social Security provides guaranteed benefits to until death. A privatized system would pay benefits until the savings run out.

The current debate over Social Security is intended to scare us into changing to a system that is not only unnecessary given the current funding of the Social Security system, but one that will increase the risks of retirement.

Center for Economic and Policy Research, 1621 Connecticut Ave, NW, Suite 500, Washington, DC 20009
Phone: (202) 293-5380, Fax: (202) 588-1356, Home: www.cepr.net

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