By Heather Boushey
Wednesday, February 9, 2005
Women live longer, earn less and fill more caretaking roles than men. For all these reasons they have a lot to lose if Social Security is changed, says economist Heather Boushey. So who would win? Wall Street brokers spring to her mind.
(WOMENSENEWS)--President Bush is talking about changing Social Security.
The word he bandies about is "reform," which harks back to progressive causes such as voting-rights reform. In those cases, to reform a system meant to change it to work more fairly for more people.
But this Bush-era reform is no way reformist in this sense. For women in particular, it could be a huge step backward.
Bush is pushing individual accounts, arguing that workers will benefit from investing in a broad mix of stocks and bonds. However, most employer-sponsored 401k plans allow workers to do just that. What most Americans no longer have is a pension that provides guaranteed, inflation-adjusted income during retirement--regardless of longevity. Social Security fills that gap.
If we move to a privatized system and it fails, it will be women who will have to pay the price. Not only do women depend disproportionately on Social Security, we are more likely than men to care for an aging parent. So without the insurance of inflation-adjusted lifetime income, more retirees could wind up relying on the time and generosity of their children. And that means more women would take on the added burden of elder care.
Bush has proposed allowing workers to invest up to 4 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 the account over time or convert the savings into an annuity or, in other words, a financial instrument that makes regular payments. For the duration of this annuity, it would pay a guaranteed income stream for the beneficiary and his or her surviving spouse (but not other dependents).
Workers will continue to have the remaining 2.2 percentage points of their Social Security tax dollars in the traditional Social Security plan, which provides inflation-adjusted benefits throughout retirement. The move to privatized accounts would be phased in only for those born after 1950, so today's retirees would see no changes under this reform.
On the upside, if a worker's portfolio earns more than 3.3 percent per year, he or she see would see higher benefits than those who left all their tax dollars in the traditional Social Security plan.
However, if returns are less, benefits will be comparable to those in the traditional plan. This might not sound so bad, until you keep in mind that the Bush administration is also expected to announce benefit cuts in addition to the private accounts. Regardless of whether an individual chooses a private account, once these proposed cuts are phased in over time, a worker who is 45 today would see a 15-percent cut in their future benefits, while those who are 35 today will see a 25 percent cut.
Social Security, unlike private accounts, insures workers. As currently structured, it is designed to provide minimal income for retirees and income for people who become disabled and cannot work. (Supplemental Social Insurance addresses the needs of those who are disabled but have not worked.)
Women account for almost 60 percent of elderly Social Security beneficiaries and this guaranteed income allows them a decent standard of living.
Women continue to be more likely to stop working to care for a child or ill family member, which has implications for lifetime earnings. A recent study from the Institute for Women's Policy Research found that, over a 15-year span, women's earnings are 38 percent of men's. The causes are women's shorter employment histories, as well as women's lower wages when they work. Last year, full-time, full-year, women workers earned 75 cents on the dollar, compared to men.
But even though women earn less from paid employment than men over a lifetime, the progressive structure of the current system--in which those with a lifetime of low earnings receive larger benefits relative to their contributions--benefits women. The system also provides disability insurance and dependent benefits. Thus, women relying on husbands for income are not destitute if something befalls him.
A privatized system does none of these things. Privatized accounts, unlike the benefits in Social Security, are based entirely on an individual's savings and returns. Therefore, while a mother is taking 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.
All of this raises a big question. If privatization is so risky, why do it?
The answer is that some proponents--Wall Street participants, in particular--will gain. Currently, administrative fees make up less than 0.5 percent of every dollar of Social Security benefits. Bush's Social Security commission estimated that the administrative costs of individual accounts would be about 10 times as high, much of which would go to brokers and Wall Street financiers. That's a lot more than what's being paid on Social Security and it could even be a low estimate. Just look at other nations that have moved to privatized plans: England and Chile have seen administrative costs as much as 30 times higher than our present system.
The bottom line: Bush's proposed plan entails risk and women have much too much to lose from it if it doesn't go according to the administration's optimistic scenarios.
Heather Boushey is an economist at the Center for Economic and Policy Research in Washington, D.C. She writes about the issues facing low-income workers and their families.
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