What do personal accounts mean for women?

December 28, 1998

As discussions of Social Security reform continue, it will be important to study the impacts of comprehensive reform proposals on women. The design of reforms must take into account, not only the current characteristics of elderly women, but also the changes in their needs that are likely to come about in the 21st century as more women with long work histories reach retirement. --National Economic Council Interagency Working Group on Social Security, October 27, 1998.

Women are disproportionately dependent on Social Security in retirement. Twice as many women as men retire in poverty, and women receive only 75 cents in Social Security benefits to men's $1.

To make matters worse, Social Security will be able to pay just 72 percent of scheduled benefits in the future. That means the average woman's monthly benefit could drop from $621 to $447.

Even if Congress could get a few more years out of the current program by increasing taxes, women's benefits would still be inadequate. Roughly 15 percent of women retire poor. Poverty rates are even higher for minority women: 29 percent of black women and 28 percent of Hispanic women retire in poverty.

The best solution is to give women the option of redirecting their payroll taxes into real retirement accounts, similar to IRAs. Personal accounts with an earnings-sharing component and a guaranteed safety net can ensure that every woman has the opportunity for a middle-class retirement and no woman retires in poverty.

Important Advantages of Personal Accounts to Women:

• Virtually every woman would be better off in retirement. For example, a single woman making $12,000 a year pays $1,488 per year in Social Security tax. When she retires, Social Security promises her $683 per month (assuming solvency). If she were allowed instead to save and invest her money in a portfolio of stocks and bonds earning a 6.2 percent return, she would retire with $936 per month.
• Social Security's discrimination against working wives and widows would be eliminated. Currently 25 percent of married women who work receive the same retirement benefit as their stay-at-home counterparts. That unfair discrimination is expected to affect 40 percent of women by the year 2040. Stay-at-home spouses, too, would have greater retirement benefits with earnings sharing.
• Women would own their accounts, which means their retirement benefits would not be taken away in the event of divorce or death, or congressional fancy.
• With a guaranteed safety net funded by general revenues, women would not have to retire poor.

See Darcy Olsen's report Greater Financial Security for Women with Personal Retirement Accounts and Ekaterina Shirley and Peter Spiegler's paper The Benefits of Social Security Privatization for Women to learn more about how women would benefit from personal retirement accounts.

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