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The Real Number on Social Security Private accounts would be a disaster, writes a woman from the generation Bush claims he’s helping — but something else in the system really does need fixing.
by Jessica Silver-Greenberg
With President Bush putting Social Security at the top of his domestic agenda, these days everyone’s got something to say about it. But while we’ve heard plenty about a so-called crisis and about private accounts, we’ve heard nothing about how Social Security disappoints those in the system with the most at stake: women.
The fact is, for younger women like me, for boomers like my mom and even for my grandmother, the methods determining the distribution of benefits leave us with far less than men.
Make no mistake: Social Security benefits are vital to women’s lives. Women comprise 52 percent of all Social Security beneficiaries — 58 percent of those over 62 — and 27 million American women currently receive Social Security checks each month. According to the Institute for Women’s Policy Research, without such benefits more than two-thirds of unmarried elderly women would live in poverty.
Today’s working women will rely heavily on Social Security when they retire, since only 30 percent currently have pensions, and baby-boomer women will be the first generation earning Social Security primarily as workers, not spouses. Superficially, the system seems to offer equal benefits to men and women, calculating them based on an average of American workers’ 35 top earning years. But those calculations fail to take into account the fact that women are far more likely than men to spend many of their top earning years at home caring for children, an aging parent or an ill spouse.
July Update: Social Security bills to be introduced in Congress
While President Bush’s plan to privatize Social Security is facing increasing opposition, three Republican senators are expected to introduce legislation to use the Social Security trust fund surplus to finance private accounts.
Sens. Jim DeMint and Lindsay Graham of South Carolina and Rick Santorum of Pennsylvania are expected to introduce the bill in an effort to keep privatization alive. Similar legislation is expected to follow in the House.
In her comments about the new proposal, Barbara Kennelly, president of the National Committee to Preserve Social Security and Medicare, said, "Legislation proposed today by members of the House Ways and Means committee is basically the same private accounts package with a new wrapper for disguise. If Americans truly approved of private accounts, privatizers wouldn't have to hide them."
Minority Leader Nancy Pelosi (D-CA) said of the new proposal by House Republicans: "Like the Bush privatization plan, the Ways and Means Republicans' proposal would divert payroll contributions to create private accounts. The only difference is cosmetic -- one approach would create risky private accounts directly from a worker's paycheck, and the other would finance risky private accounts from Social Security payroll taxes when they reached the federal Treasury,”
In the past, Social Security surpluses have been used to supplement the federal budget.
Diverting the surplus for the purpose of setting up private accounts jeopardizes future benefits. It also raises serious concerns about the impact on other federal programs as the massive federal debt continues to mount -- now to the tune of $7.8 trillion and each year the deficit contributes to the debt.
In 2005 the deficit is estimated to be between $320 to $368 billion. Social Security, which has run at a surplus of approximately $150 billion annually over the past five years, has been used to fund other government programs since the mid-1980s. - Norma R. Gattsek, deputy director, Policy & Programs,
Feminist Majority Foundation / Feminist Majority
According to the Bureau of Labor Statistics, women spend more than twice as much time out of the labor force between ages 18 and 38 as men do, while up to 75 percent of those providing care for elderly relatives are women.
To the Social Security system, those years are “lost”: Women are “zeroed out” and denied any credit. Yet those years still count in the averaging of benefits — and that means benefits will be lower.
Women on average already earn less than men, but the “lost years” exacerbate the benefit drop-off caused by lower wages. Between 2000 and 2002, women’s benefits were just 68 percent of what men received, according to the Social Security Administration. It wouldn’t be that hard to fix the “lost years” disparity: Experts suggest either counting up to 10 of those caregiver years and five additional earning years toward special minimum benefits, or not including the caregiving years in calculating average income.
But has anyone heard President Bush mention anything about this? Hardly.
What he has talked about, endlessly, is his plan to add private investment accounts to Social Security, promising high stock-market returns and individual autonomy. Bush has camouflaged the real impact of this plan, though — such as the inconvenient fact that private accounts don’t supplement but replace a percentage of traditional benefits — and has, perhaps willfully, confounded the public.
My generation — just entering the workforce and, Bush claims, having the greatest potential to be positively impacted by privatization — seems most confused. The more young women learn about privatization, the more we dislike it — and rightfully so.
Social Security as it stands provides benefits adjusted for inflation until death; benefits from privatized accounts would last only as long as funds remain in the account.
Since women generally live longer than men, we would most likely be forced to retire later and stretch our money over a longer span, thus living on less or running out of retirement funds altogether.
In other words, by emphasizing private investment accounts, Bush has repositioned Social Security as simply another 401K. And that’s risky business, says Martha Burk, chair of the National Council of Women’s Organizations: “Social Security is the one piece of retirement income that should be guaranteed and not linked to the uncertainties of the stock market.”
Advocates of private accounts assure us that the higher risk ultimately yields a higher return. But that’s assuming, among other variables, that the stock market is on an upswing when you need to use the funds — and we all know how wildly the market can fluctuate.
Also, you would have to earn more than 3 percent above inflation on private accounts to beat the amount you would have earned from a traditional Social Security account. The other beauty of the 70-year-old Social Security system is that it’s progressive: It provides relatively more benefits to middle- and lower-income workers (compared to what they put into the system) than it does to higher-income people.
Of course, the higher-income people, with their healthier portfolio of assets and bountiful pension plans, have less need of the Social Security safety net. The president’s proposal, as we go to press, combines privatization with a change in the system’s progressive nature — assuring traditional benefits only to the lowest wage earners.
Everyone else would see a reduction in benefits — and women would continue to take the brunt, no matter in which category they fit. Since women earn less than men, they would not only have fewer dollars to invest in private accounts (thus ending up with a smaller nest egg upon retirement), but under Bush’s proposal any woman above the poverty level would probably experience cuts in her traditional benefits as well.
And not just women would be adversely impacted: A recent Century Foundation study reported that the privatization plan would, over the next 47 years, reduce current Social Security benefits for everyone by at least 44 percent. While benefits shrink, the federal debt would balloon to cover the money eager investors pull out of the Social Security program. Indeed, privatization would require borrowing nearly $5 trillion over the next 20 years.
For women of my generation, who have grown up with the assumption that we could have both family and a career, Bush’s privatization plan would exact a painful price for motherhood. Many of us could be forced to choose between building up future retirement benefits and taking time out to raise our children.
But, again, at least the current heightened awareness around Social Security gives women a chance to illuminate the inherent inequalities in the current system, as well as the potential dangers in the plans that have been proposed.
If we don’t engage now, harnessing the publicity engendered by President Bush’s traveling Social Security road show, we’ll lose a golden chance to try and fix the system. It’s time for us to stand up for women’s rightful benefits, and protect the secure retirement we deserve.