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Preeti on the Web |
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Providing Food for Thought |
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Women have much at stake because, compared to men, they earn less, live longer and are less likely to have private pensions. This makes them especially dependent on Social Security. |
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Beware reforms that put women at financial risk |
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August 22, 2005 |
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To Contact Preeti: preetiontheweb at yahoo dot com |
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Please note that all text on this webpage is copyrighted ©. Please do not quote or paraphrase without using proper citations. |
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Note: This op-ed column appeared in the Lexington Herald-Leader newspaper August 22, 2005. It was also referenced in the Women and Social Security Alert, No. 13, put out by the Institute for Women’s Policy Research on Aug. 31, 2005. The 70th anniversary of Social Security on Aug. 14 reminded me of my annual Social Security statement, which provides an estimate of what my retirement and other benefits should be based on current law.
The latest statement contains this footnote: “…by 2041, the payroll taxes collected will be enough to pay only about 74 percent of scheduled benefits.”
So, the good news is that Social Security isn’t going completely bankrupt. The bad news is that I’ll receive only 74 percent of what current law says I should, unless Congress makes some changes.
Responding to the strain that the retirement of the baby boomers will be placing on Social Security, policy-makers have proposed many reforms. President Bush’s proposal would give workers the option of diverting part of their payroll taxes into private accounts. Traditional Social Security benefits would then be reduced by the amount put into one’s account, plus interest.
Women should pay particular attention to the Social Security debate. Women have much at stake because, compared to men, they earn less, live longer and are less likely to have private pensions. This makes them especially dependent on Social Security.
According to the Institute for Women’s Policy Research, without Social Security, 68 percent of unmarried women over 65 who live alone would be in poverty. And nearly a quarter of women over 75 rely on Social Security as their only source of income.
Some questions that women should ask about any Social Security reform proposal include:
• Am I protected for life? Currently, Social Security benefits never run out, even if you live to 120. They are also regularly adjusted to keep up with increases in the cost of living. These features benefit women, who have a life expectancy of 80, compared to 75 for men, according to the National Center for Health Statistics.
When considering private accounts, women should ask what safeguards are in place to ensure that the money in the accounts won’t run out before the recipient dies. One possibility would be a requirement to convert the account into an inflation-indexed annuity upon retirement, although private insurance companies rarely offer such a product now.
• What is the impact on people with lower lifetime earnings? Over the course of their prime working years, women earn about 38 percent of what men earn, according to an analysis by the Institute for Women’s Policy Research. The main reasons for this difference are that women take time out of the work force to raise children, and they work in lower-paying occupations.
Low-income workers now benefit from Social Security’s progressive benefit structure, which replaces a higher percentage of their earnings than those of higher-income workers. With private accounts, women would accumulate less in their accounts than men, but have to spread the money out over a greater number of retirement years.
• What kind of spousal benefits will I get? A woman is now entitled to either a spousal benefit equal to 50 percent of her husband’s benefit or Social Security benefits based on her own work record, whichever is higher.
Under this arrangement, one-earner couples benefit more than two-earner couples. The current debate over Social Security has so far paid little attention to how spousal benefits would be affected by private accounts.
• What happens if I divorce? A divorcee now has to have been married for at least 10 years to the former spouse to be eligible for benefits based on his work record. One benefit or drawback (depending on your view of divorce) of private accounts is that they could be required to be divided at divorce, even if the marriage lasted less than 10 years.
• How would survivor and disability benefits be calculated?
Social Security insures against death and disability. Spouses and children who meet certain criteria can receive benefits when a worker dies or becomes disabled.
Private accounts would be inheritable, so a worker who died close to retirement could pass on a sizable inheritance.
On the other hand, if a 30-year-old man with a stay-at-home wife and children suddenly died or became disabled, he is not likely to have saved much in his account.
These are not all the questions women should ask about any Social Security reform proposal, but they are some of the important ones. Women have much at stake, and they owe it to themselves and their families to get the answers. |