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Don't Look to Wall Street for Retirement Safety

Wednesday, January 23, 2008

Amid indicators of a recessionary election year, Susan Feiner says women should safeguard Social Security from politicians who would turn their most important retirement benefit over to Wall Street gamblers.

Subhead: 
Amid indicators of a recessionary election year, Susan Feiner says women should safeguard Social Security from politicians who would turn their most important retirement benefit over to Wall Street gamblers.
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Susan Feiner

(WOMENSENEWS)--Make no mistake. Wall Street's best and brightest are resurrecting fears of a Social Security "crisis" to divert our attention from the worst financial crisis since 1929.

The sky is not falling! In fact, Social Security is financially healthier today than it has been for most of its 69 years.

The Social Security trustees and the Congressional Budget Office provide the most reliable data.

The trustees say all current and future retirees will receive full benefits--including increases associated with the rising cost of living--through 2041.

The Congressional Budget Office estimates Social Security is fine through 2046.

In both cases minor changes--such as those made by past presidents, including Ronald Reagan--will build the trust fund balances needed to fully fund U.S. retirees well into the next century.

This is particularly important for women since Social Security's guaranteed benefits remain our most important source of retirement income.


Median annual incomes in 2000 for men and women 65 and older

  Women Men Gap Gap as
a %
Social Security $7,750 $11,040 $3,290 30%
Assets $1,330 $1,650 $320 19%
Pensions $5,600 $10,340 $4740 46%
Earnings $8,450 $14,780 $6330 43%
Total Retirement Income $23,130 $37,812 $14,682 39%
Social Security as a % of Total 34% 29%    

Source: Institute for Women's Policy Research.

If you cannot read this table click here

And it's reason enough for women to rally against any gambits to turn our economic well-being over to the most reckless gamblers in the world.

In a reprise of Enron-Tyco-style chicanery, the CEOs behind today's housing market-mortgage debacle will pocket millions in bonuses.

At Country Wide, for instance--a leader in mortgage-servicing abuse--executives are not being punished. Instead news reports tell us that CEO Angelo Mozilo could walk away with $66 million, some of that in retirement pay. At the same time the company is sweetening million-plus bonuses for other executives to stick around through the agreed buyout by Bank of America.

Meanwhile the housing bubble is exploding and falling home prices will wipe out between $4 and $8 trillion of homeowners' wealth. Foreclosures are at record highs. For most women a home is by far their most valuable asset. Although millions planned their retirements based on gains from the sale of a home, the sharp drop in house sale prices means the same for retirement incomes.

Amid all this some presidential candidates still talk about taking billions out of Social Security--the most successful anti-poverty program in U.S. history--and speculating in the financial markets.

Incredible.

There were over $2 trillion in assets in the Social Security Trust Fund at the end of fiscal 2006. Wall Street money managers salivate at the prospect of plundering these public assets but women should look at the reasons why Social Security is necessary to our economic future.


Why Women Depend on Social Security

  • Fully 59 percent of women have no employer-sponsored pension benefits, according to 2006 U.S. Census Bureau figures.
  • Many employers have long "vesting periods" before workers actually own their retirement accounts with the result that women's higher turnover rates hurt them.
  • More than half of all women are pushed into part-time work because of the lack of affordable care for children, the sick or the elderly. Part-timers rarely get retirement benefits.
  • More often than men, women work in small enterprises where retirement benefits are rare.
  • Because sex discrimination and job segregation keep women's earnings at around 76 percent of men's, women's lower earnings and savings mean their retirement funds grow more slowly.
  • At 65 the typical woman is likely to live 10 years longer than the typical man, which means that more often for women than men Social Security is the only benefit we can rely on for our entire life spans.

If a woman wants to protect her Social Security interests where should she look in this election year?


Forget the Republicans

Forget the Republicans. None believes in Social Security or wants to see it continue. Details vary, but each stands for privatization of all retirement benefits.

On the Democratic side--Barack Obama, Hillary Clinton and John Edwards--all voice support for Social Security. All reject the scare mongering of the Republicans, but they offer different responses to Americans' pension needs.

Obama--called out in November by New York Times columnist Paul Krugman for buying into Social Security scare mongering--now firmly rejects the crisis mantra and fully endorses the present system of public pension financing.

Because some funding increase is needed to cover payouts to retirees beginning around 2041 he recommends increasing the level of earnings subject to the social-security tax. Currently only the first $97,500 of wage and salary income is taxed. Obama, with Clinton and Edwards, understands that once this cap is raised the funding problem disappears!

The current tax cap, by the way, is in itself is a strong bias against women, who are more likely to pay taxes on 100 percent of their earnings since we earn, on average, less than men and therefore are less likely to exceed the tax cap.

Hillary Clinton's position is ambiguous. An October press release notes "her commitment to protect the guaranteed benefit of Social Security," but then goes on to explain how "Hillary's . . . plan tackles the current retirement savings crisis."

With no further discussion on her Web site it is not clear what "crisis" she's talking about.

Hillary, like Bill before her, wants all Americans to build 401(k) type plans with values that depend on the stock market. In her plan all retirement contributions come from workers themselves; employer contributions are not required.


Edwards Insists on Defined Benefits

In the past union bargaining pushed employers to offer most employees defined benefits plans and 20 years ago almost half of all full-time workers had them.

Defined benefits plans--the ones that CEOs craft for themselves--are far superior to defined contribution plans. In the former both employers and employees pay into the pension, then at retirement the retiree receives a set or "defined" amount each month, which is often indexed to inflation. It is critically important to realize that only Edwards--undoubtedly due to his strong pro-union stance--is insisting that employers be held to their defined benefits obligations.

Defined contribution plans do not guarantee any particular monthly payment at retirement. Instead, a set "defined" amount is paid in each month. Employers need not contribute anything. The pay-out varies depending on the investments you've made, your salary, how long you've worked and the vicissitudes of the stock market.

Employers can certainly afford defined contribution plans. Since the late 1970s inflation-adjusted wages have been stagnant while worker productivity has nearly doubled. Many once-secure white-collar jobs now exhibit the characteristics of sweatshops: The pace is relentless, employer demands on workers' time are rising and employer contributions to pensions are a quaint memory. Obscene increases in CEO pay and corporate profits are the result.

These working conditions make the need for Social Security stronger now than at any time since World War II.

Planning for retirement is about security and safety. Financial markets are about risk and volatility. The two do not mix. Just ask your neighbor whose sub-prime mortgage is about to re-set. Or the person across the street who just lost her home in a foreclosure.

Susan Feiner is director of women and gender studies and professor of economics at the University of Southern Maine. Watch for her new blog featuring clear answers to your questions about the economy.

Women's eNews welcomes your comments. E-mail us at editors@womensenews.org.



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