Posted on 02/10/2005 3:35:11 PM PST by technochick99
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.
Editor's Note: The following is a commentary. The opinions expressed are those of the author and not necessarily the views of Women's eNews.
(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.
4 Percentage Point Plan
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.
Women Have Much to Lose
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.
Progressive Structure Helps Women
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.
Gee, Chile managed. And has for quite a while now.
And, the argument doesn't take into account that not acting is associated with risks.
Everyone over thirty must start smoking 4 packs of cigarettes a day.
And in addition to that, you can't wring blood out of a stone. Social Security taxes get any higher and it won't pay to work.
Warren Spieker: “I must respond to Jon R. who writes in today’s column ‘...the system is taking in more money than it needs to pay benefits. End of story.’ This may be the end of the story for Jon, but, as a young worker, it isn't for me. The CBO (neutral third party) has stated that without changes the system will be out of funds somewhere around 2042-2052.”
Yes! But at that point, with two workers for each retiree, the CBO estimates you will get 75% or so of the promised benefit. (More than the “two-thirds” you might intuitively expect with two workers instead of three, but remember that with three we currently overshoot the needs by $200 billion a year.) So the system will be out of excess funds in 40 or 50 years, but even if we did nothing – and I do think some small tweaks should be made now to fix the eventual shortfall – you would still get 75% of what’s been promised. And many believe that 75% of this promised amount will likely be more than 100% of what retirees get today. If we do nothing!
(The reason 75% of the promised amount may be more than what retirees get today – even after allowing for inflation—is that initial benefits are tied to wage inflation, which is commonly expected to outpace the cost of living – though I worry it may not.)
No one should fall for the scare tactics.
In my view, today’s young workers should demand fiscal responsibility from their government (no huge tax cuts for the rich in the midst of a war, when we’re running deficits and having to take cops off the street) . . . they should embrace the current system (slightly tweaked) both as their way of helping the parents and grandparents who raised them (it’s part of life’s bargain), but also as a bare bones safety net that they, too, will benefit from someday . . . they should rejoice that the retirement system in America is already largely privatized (IRAs, SEPs, SIMPLEs, Keogh Plans, 401Ks, 403Bs) . . . and they should absolutely contribute to those private accounts, because if they don’t, they’ll have only Social Security to retire on, and as any retiree will tell you, if that’s all you’ve got, it’s a tough life.
LOL. Post 6 has a Dem idea (if I may be so generous).
Yeah, like SS going bankrupt - which will leave women without other options completely in the lurch. Just imagine if that 12% (or even 2% under private accounts) of their husbands' salaries had been going into profitable investments during their working lives instead down the sinkhole of SS.
Women already lose in the current system.
I worked full time from the time I graduated from college until my son was born (approx. 13 years).
I quit working to be a stay at home mom and homeschooler, and those 16 years out of the workforce took me back to square one.
Now he's in college, I've gone back to work, but I'm basically starting over when it comes to Social Security and Social Security disability credits.
OK, I admit that I didn't read the article yet, I will go back and do it next. But, I have to call bull$hit on this right now. Because women live longer and fulfill caretaker rolls more often is precisely the reason that the reform will HELP them more. As the SS systems stands right now, a widow has the choice of receiving either her own SS or that of her husband, NOT BOTH. My sister-in-law is in this situation, they both had paid in the maximum amount each year they worked, but since he died before collecting any of it, she can only collect on the one, the other is lost completely.
Under this reform, the husband/wife can pass on their private accounts to each other, or their children upon their death, unlike SS. How can anyone say that it would NOT benefit women more???
Why is it that nobody points out that ALL pension plans including public sector are privately invested????
Women are generally more risk averse than men. When Al Gore referred to SS partial privitization as a "risky scheme" he was speaking to the female portion of our electorate.
Thought you might be interested - PING
World to end tomorrow, women and minorities hardest hit.
I think we need to be in the same retirement plan that Congress is in. That would only be fair.
As if this was some God given or constitutional right? I wish life came with guaranteed, inflation-adjusted income for life. But then what would force us to build character?
In the absence of any existing Social Security program, imagine you were getting this bullet-point pitch from a financial services firm:
1. Send us 12.4% of your gross income, for the span of your entire working life.How would any thinking adult respond to such a proposition? By hanging up the phone. Or, if the salesman is on your front porch, by siccing the dogs on him. Then calling the Better Business Bureau and reporting the charlatan.2. We won't be investing the money. We'll be spending it. We'll put an IOU in your account, though.
3. Those accumulated IOUs will earn the equivalent of about 1% interest (compounded). We reserve the right to reduce benefits in the future, though, so you're real rate of return may actually be a negative.
4. When you turn 65, we won't give you the option of taking a lump sum settlement. Instead, you'll be forced to buy an annuity that will provide you with a modest monthly income (that's computed in a way only we understand).
5. Understand the IOUs in that account aren't really yours. If you die before you turn 65, or if there is anything left in that annuity when you die, you can't leave the proceeds to your estate. We keep it.
6. Understand also that the program is inherently doomed over the long run, since the demographics won't allow us to sustain the sales necessary to maintain the current level of benefits. At some point, we're going to run out of money.
7. No, you don't have any choice in the matter. If you're an American wage earner, you're automatically enrolled. Sign right here. And you won't even have to send us a check -- we'll have the employer deduct your payments and send the money direct to us.
Now, Bush comes along and actually wants to offer some improvements to that dreadful proposition. And the Democrats don't want to change it?
We're not really that dumb, are we?
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