The Gender Gyp: When it Comes to Social Security, Women Have a Lot More to Lose

It’s true what you’ve heard: women are different from men.

Look at a snapshot of our economy. Although times are changing, women still are less likely than men to join the work force (which doesn’t mean they’re working any less hard at home, they’re just not getting paid for it). Women who do go to work are generally paid less than men, and they’re less likely to have any kind of pension plan. They’re far more likely to leave employment for long stretches, to raise kids—often as single mothers—or to care for aging parents. And, as a rule, they live longer than men.

These facts have far-reaching consequences. Women are less likely to be able to accumulate savings while working (or, of course, while out of the work force). But because of their greater longevity, they’re more likely to need income for decades after their earning years draw to a close. And in old age they’re likely to end up alone, with few resources to draw upon.

That’s where Social Security comes in.

"Social Security looks very different from a woman’s perspective," says Nancy Duff Campbell, co-president of the National Women’s Law Center. "For men it’s mainly a worker retirement program. For women it’s a family insurance plan."

Janice Thomas, a former nurse now raising two children, sees firsthand how it works for the elderly parishioners she encounters doing pastoral outreach work at a church in Washington. "I know how important Social Security is to the women I visit with," she says. "They’d be lost without it." She’d like to see the program strengthened—for example by providing credit for years spent raising a family—but mostly she wants to see no changes that could expose more women to the risk of ending their lives in poverty.

"As a neonatal and pediatric nurse in Atlanta, I saw the effects of poverty at the beginning of life," she says. "Social Security guards against it at the end. To weaken that protection would be criminal."

While 80 percent of men get benefits as retired workers, only 39.7 percent of women do. Most women—60.3 percent—get benefits at least in part as a spouse or former spouse of a retired, disabled or deceased worker. Social Security is designed to meet their needs in four ways:

1. It uses a progressive benefit formula that replaces a higher proportion of earnings for people with low lifetime earnings. That ’ s particularly important protection for women working in low-wage jobs and for women who leave the work force to raise families or care for aging parents and then re-enter it later.
2. Its annual cost-of-living adjustment (COLA) fully protects benefits — whether paid to a retired worker, a spouse or a survivor — against inflation and maintains their purchasing power over time. That ’ s vital protection for longer-living women (who account for 71 percent of all beneficiaries age 85 and up).
3. It helps women who haven ’ t been working but who are married to a worker by paying them a benefit when the working spouse retires (generally 50 percent of the worker ’ s benefit). When the retired worker dies, his widow gets a lifelong benefit equal to his benefit.
4. It pays survivor benefits to women whose husbands die or become disabled during their working years, helping them meet the cost of raising children. Although politicians speak of Social Security as a program for retirees, it helps more than 5.3 million children — making it the nation ’ s most important safety net for them.

That’s how the program saved César Moreno Pérez’s mother when her husband, a California farm worker, died in 1994, leaving her to care for their eight children. Social Security survivor benefits kept the family out of poverty and helped César to graduate from the University of California at Berkeley. Today, he works as a policy analyst for the Labor Council for Latin American Advancement.

"My grandmother worked most of her life in the fields and depends totally on her Social Security check," he says. "For my mother it will be the same story when she can’t work in the fields anymore. Social Security doesn’t make anyone rich, but by keeping people out of poverty it helps them keep their dignity."

Social Security isn’t perfect. Lawmakers could do more to help women by taking steps such as improving benefits for dual-earning spouses and by providing a "family service credit" for the years when a woman leaves employment to raise or care for a family. But such changes would increase Social Security’s overall costs, so they’re unlikely to gain traction at a time when many politicians claim that Social Security faces insolvency and that our first priority should be to shrink the program.

Social Security’s critics argue that the current program has shortcomings affecting African American families. They claim that African American men die younger and their families would be better off if some of the money had been in private accounts that could be left to heirs. Yet the private account may not contain enough money for the monthly benefits that Social Security provides to widows and surviving children. In addition, African American families rely more on Social Security’s disability benefits, which private accounts generally cannot match.

Despite the scary talk about Social Security’s future, the program’s trustees anticipate that revenues over the next 75 years will probably fall short of expenses by about 2 percent of taxable payrolls. Economists and politicians have suggested various ways to close that gap and keep the program solvent without slashing benefits.

Strengthening the program is the approach favored by Shannon Huhn, a commercial real estate broker in Laguna Beach, Calif. She remembers her grandmother moving in with her family when Huhn was a teenager. "She had come to America as an Irish immigrant, she was widowed at a fairly young age, and Social Security—along with our family—was her safety net," Huhn recalls. "Now we’re told that Social Security is underfunded. We should shore it up, not redesign it in a way that puts basic retirement income at risk. The right place for risk is a 401(k) or an IRA—not Social Security."

President Bush is campaigning for a very different plan. Rather than shore up the present program, the two proposals he has thus far embraced would shrink it by (1) encouraging workers to divert some of their payroll contributions into private investment accounts, and (2) reducing benefits, compared to what’s promised under current law, for all but the poorest workers.

The mechanics are complex, but the basic thinking is simple: The hope is that private investment accounts would do well enough to offset the reduced benefits. Meanwhile, Social Security would gradually become a much smaller program.

Bush argues that private accounts will be a better investment than Social Security. Campaigning in Kentucky on June 2, he said: "Right now, when we collect your money, if you’re a youngster out there working hard and paying into the system, you’ll be displeased to know you get about a 1.8 percent return on your money, which is pitiful … Heck, you can put your money in T-bills and do better than that." Mary Katharine Ham, editor of the Insider, a Heritage Foundation quarterly publication, echoes the president’s argument: "Granted, my Social Security money does gain 1.76 percent. That’s better than the 0 percent sock-drawer rate but less than the amount it would earn in a simple savings account—and much less than it would earn if I could invest it in bonds or stock index funds."

But others argue that it’s misleading to talk about Social Security as an investment, since its purpose is to provide insurance—and you wouldn’t talk about home insurance, for example, as an investment.

The key issue is how switching to a private investment account would affect women—and the answer is, it depends. If you work in a low-wage job or take time out to raise children, you’re unlikely to be able to build up much of an account. When you retire, if you convert your account into an annuity—an insurance policy that provides annual income in monthly payments—a small balance in the account would mean small payments. If the stock market is down when you retire, the account may be even lower than expected—further reducing the annuity (which will also be reduced by administrative fees).

Moreover, annuities are based on life expectancy—which works against women. To illustrate: If a man and a woman arrive at retirement with equal amounts in their accounts, the woman will get a lower monthly payment—typically about 8 to 13 percent lower—because the insurer assumes she’ll live longer. Terms vary from company to company, but for an annuity purchased at age 65 with a $100,000 investment account, a man might get about $700 a month, a woman about $610.

So, whether a woman gets an annuity as a former worker or as a spouse, she’ll get lower monthly payments than a man. And, as time goes on, the purchasing power of her annuity will shrink. A typical annuity purchased at age 65 will lose at least 40 percent of its value by the time she reaches age 85. Few annuities carry any inflation protection, and those that promise partial protection (often capped at a certain percentage) do so by reducing the amount of the monthly payment. No annuities carry the full protection of Social Security’s COLAs.

In short, a private investment account can work for those who have considerable money to put into it and who are not concerned about inflation protection. But for others, this could be a risky way to build basic retirement income.

It’s too risky when compared with the assured benefits that Social Security provides, says Erma Jean Mingo, retired and living in San Diego after 40 years as a public school teacher and assistant principal in Denver. "I follow the Social Security debate every hour on the hour," she says. "For generations Social Security has helped families like mine overcome the disadvantages we came up against. My father worked hard all his life—and then he lived on his Social Security. My brother is disabled; he lives on his Social Security. We need what the name says—‘security’—not more risks. There’s risks enough in this life without thinking up new ones."

Women will also be affected by another part of Bush’s plan—reduced benefits (compared with what’s promised under present law) for all but the poorest workers, those making below about $20,000 today. By linking benefits to prices instead of wages, the plan would cut benefits for everyone else—in other words, for about 70 percent of workers under 55 today. That means that benefits payable to the surviving widows and children of such workers would be cut, too, because they’re based on the worker’s benefit. Thus, shrinking Social Security by cutting wage earners’ benefits would have a domino effect.

Proponents of this approach argue that scaling back benefits for all but the poor is necessary because Congress has made promises it can’t keep, sending Social Security toward eventual insolvency. Others, however, believe that moderate revenue increases and benefit adjustments can keep the program in balance. The president’s proposal for price indexing is "an unnecessary and unfair benefit cut on the middle class," according to AARP Director of Policy John Rother.

There’s a strong case to be made that most women can’t afford to see their old-age security jeopardized by benefit cuts. Without Social Security, 53 percent of all women over 65 would be poor (compared with 12.4 percent now). Social Security provides 90 percent or more of total income for more than four in 10 single (including widowed) women over 65.

For minorities, there’s even more at stake. More than six in 10 single African American and Hispanic women receive 90 percent or more of their income from Social Security. And even with Social Security’s help, nearly half (44 percent) of African American and more than half (58 percent) of Hispanic elderly women living alone are poor.

"Given these circumstances," says Maya Rockeymoore, research director for the Congressional Black Caucus Foundation, "the guiding principle for lawmakers should be ‘First, do no harm.’ "

Looking ahead, will fewer women need to rely on Social Security in their old age? If so, policy decisions that have the effect of increasing risk and gradually shrinking benefits might not seem so harsh. But many experts agree that, based on key indicators, women’s reliance on Social Security will remain high. Among the indicators:

Work force participation rates remain lower for women in the 25-to-54 age range (75 percent versus 91 percent for men).

Women earn less than men (about 76 cents on the dollar).

The typical woman’s 401(k) balance is 40 percent lower than the typical man’s ($10,000 vs. $17,000).

Social Security’s actuaries estimate that, 40 years from now, 40 percent of women will rely at least in part on spousal benefits for their income. The Gerontological Society of America forecasts that poverty rates among those women who become eligible for Social Security benefits in 2020 will be unchanged from 1991.

It’s hard to argue that Social Security is outliving its usefulness for women. "I’d like to believe I’m planning my own life so I’ll never have to depend on Social Security," says Patricia Huggins, an aerobics instructor and massage therapist in Washington. "But you never know what will happen, which is why we need to be able to count on it. I’ve worked with older women in nursing homes living on fixed incomes who absolutely rely on Social Security, and I think the onset of old age is challenging enough without living in fear of not having enough to live on."

Thomas N. Bethell, a writer-editor in Washington, has been following Social Security issues for many years.