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Part: 3

Retirement Watchdogs Growl as Wall Street Rocks

Tuesday, September 16, 2008

Wall Street's havoc is expected to be especially hard on the retirement plans of women, whose savings cushions are smaller and less able to absorb the shock of a major market reversal. Some retired women may be pulled back into the job market.

Subhead: 
Wall Street's havoc is expected to be especially hard on the retirement plans of women, whose savings cushions are smaller and less able to absorb the shock of a major market reversal. Some retired women may be pulled back into the job market.



Lehman Brothers on Sept. 14.

Editor's Note: Economist Susan Feiner weighs in on why Social Security is so critical to women during the financial crisis. Read it here.

(WOMENSENEWS)--The weekend fall from grace of two Wall Street giants--Lehman Brothers and Merrill Lynch--spread defensive growls through the ranks of watchdogs for women's retirement security on Monday.

"Our members don't have a lot of money, so they are asking themselves, if Merrill Lynch can't get through this crisis, will I be able to do so?" said Ashley B. Carson, executive director of the Older Women's League, based in Arlington, Va.

Joan Entmacher, vice president for family economic security at the Washington-based National Women's Law Center, echoed that concern. "The news that Lehman Brothers, a 158-year-old bank burdened by $60 billion in soured real estate holdings, had filed for bankruptcy sent shivers down the spines of many women who are concerned about the fate of their 401-k plans," she said. "They are wondering if they will have anything left if the crisis continues."

Many Americans have a significant portion of their retirement savings invested in the stock market, where shareholders as a group lost approximately $700 billion on Monday, making it the worst day for the market since Sept. 11, 2001, when New York City came under a terrorist attack that killed 2,700 people.

The U.S. stock market has lost $4 trillion since October 2007. The global stock market--where many U.S. retirement savings are invested--saw $2.8 trillion erased this week following the news of Lehman's bankruptcy, according to Bloomberg News.

Data collected by Vanguard, the large investment manger based in Valley Forge, Pa., indicates women in their plans having less to lose than men. Women's mean holding in their defined contribution retirement plan was $19,749 on Dec. 31, 2007, compared to $32,391 for men. Average holdings for women were $56,723 versus $95,447 for men.

"If it has taken a woman 40 years of back-breaking labor to save $20,000, she is going to feel the sting of loss more than a man who has a larger and more comfortable cushion," said Cindy Hounsell, president of WISER, a women's retirement advocacy group based in Washington, D.C. "Smaller losses hit women harder because almost 2.5 million older women live in poverty in the U.S. compared with 1.1 million men."

Revising Plans

Alicia Munnell, director of the Center for Retirement Research at Boston College, predicted that the expanding financial crisis would cause many women to revise their retirement plans.

Cindy Hounsell

"The stock market is back to where it was in 1998," she said. "Women have seen their fragile assets wiped out in the blink of an eye, so they will have to work longer. Women who had hoped to retire at age 62 will have to work until 70 or more to catch up. We will see a lot of older women putting up with stressful situations in the workplace that they had hoped to leave behind."

Women who retired several years ago might also return to the work force to rebuild their nest eggs.

"Many retired women who are supporting grandchildren or their husbands will be looking for jobs because they will have less money for food, gasoline and other necessities," said Carson. "We will also see older retired women who have lived alone moving in with relatives and friends because housing is so expensive. Although they may want to find jobs, many older women won't be able to do so because the unemployment rate is the highest in five years."

Carson predicted that women in their 20s and 30s would begin to think more seriously about their retirement savings.

"Younger women are focused on paying off their college loans and buying their first homes," she said. "They assume that they have decades to put away money for retirement, but this crisis shows that they have to consider retirement too."

Wake Up Call on Social Security

Entmacher, at the National Women's Law Center, said that the crisis on Wall Street should be a wake-up call for the next administration to protect Social Security.

"Social Security is especially important for women," she said. "Nearly two-thirds of women 65 and over get a majority of their income from Social Security and nearly one-third rely on Social Security for 90 percent or more of their income. Without Social Security, more than half of all elderly women would be living in poverty."

Laurel Beedon, senior policy advisor at WISER, said Social Security benefits will become increasingly important in the years to come because they include a cost-of-living adjustment.

"The typical benefit of $740 doesn't sound like much, but it keeps the wolf away from the door," she said. "Cost-of-living increases are extremely important because more women are living to their 80s and 90s and exhausting other resources."

Women rely more on Social Security than men because they earn less, according to Business and Professional Women-USA, an advocacy organization in Washington, D.C. Women are more likely to take time out of their careers to care for children or elderly relatives and are paid less than men for equal work, the group notes.

Presidential candidates Sen. John McCain, a Republican, and Sen. Barack Obama, a Democrat, have launched aggressive outreach programs to reach out to female voters, but neither responded to the Wall Street news. Neither campaign returned calls for comment.

Obama's Web site calls for incentives to employers to automatically enroll workers in retirement savings accounts. In March 2005, less than half of the 60 million waged and salaried women participated in a retirement plan, the campaign notes.

Campaigns Differ on Privatization

Obama opposes efforts to partially privatize Social Security, calling it a cornerstone of the U.S. social compact in a recent speech.

On his Web site McCain does not address overhauling Social Security, sometimes called a "third rail" because of the danger it poses to politicians who propose changing it. But he is open to an initiative to allow workers to take a portion of their payroll taxes out of Social Security accounts and invest it in stocks or bonds, according to a Sept. 7 story in the Wall Street Journal.

President George W. Bush pushed for partial-privatization after he won a second term in 2004, but failed to convince the Republican-controlled Congress to act on it.

James K. Galbraith, chair in government-business relations and an economist at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin, predicted that Social Security would become more important in the last weeks of the presidential campaign.

"Social Security has worked for 70 years, and many women voters will consider this issue carefully when they vote in November," he said. "The economy is already the No. 1 issue and the crisis on Wall Street underscores its importance."

James is the son of John Kenneth Galbraith, the Harvard University professor of economics who wrote The Great Crash 1929, which recalled the mistakes on Wall Street in that era. When John Galbraith died in 2006 at 97 the book was still in print.

Sharon Johnson is a New York freelance writer.

Allison Stevens, Women's eNews bureau chief in Washtington, D.C., contributed reporting to this article.

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