Closing the Financial Gender Gap

by Darcy Olsen

Darcy Olsen is an entitlements policy analyst at the Cato Institute in Washington.

The revolution born 150 years ago in Seneca Falls, N.Y., won women the right to education, property and the vote. Today, another revolution promises similar advancements for women: Social Security privatization.

A private, market-based retirement system would give every woman the tools to acquire significantly greater retirement income than Social Security provides -- whether she is single or divorced, married or widowed, rich or poor.

Today, a married woman who works 40 years earning the national average wage of $22,000 could expect to receive only $975 a month from Social Security. Under a private system, in which the money taken by payroll taxes is invested in private capital markets, she could earn roughly $2,400 a month.

And even that estimate of Social Security's benefits may be too high, since the Social Security Administration estimates that it will be able to fund only 75% of promised benefits by 2032. That's a very conservative estimate.

Or consider the case of a low-income married woman who works for 35 years earning only half the national mean wage, $11,000. She could practically double Social Security's benefits under the private system.

Under a fully privatized plan, she would collect roughly $1,050 a month; under Social Security today, she can expect to collect $600 a month. So much for Social Security's supposedly progressive benefit structure.

In a recent letter to President Clinton, 39 House Democrats, all women, urged the president to pay attention to the impact that Social Security reforms would have on women. That's sound advice, since women depend disproportionately on Social Security for retirement income.

Four in 10 unmarried women rely on Social Security for 90% or more of their retirement income, compared to just 29% of unmarried men. What's more, the poverty rate among elderly women is twice the rate among elderly men. And women receive lower Social Security benefits than men do: $621 per month vs. $810, on average.

Women have the most at stake in any Social Security reform effort. And reforms that would merely tinker with the system, raising payroll taxes or cutting benefits, simply reduce the value of an already inadequate benefit.

Any serious proposal for full privatization includes a safety net that will protect any worker, male or female, in the event of misfortune. But the beauty of privatization is that it goes beyond the government's safety net -- it gives every worker the ability to save, to invest and to achieve real financial independence.

Women should be free to choose to place 10% of their income in private, interest-bearing accounts or stay in the current system. Privatization would provide a fully funded safety net and still give women the ability to earn as much as four times what they would get from Social Security.

The battle for privatization is fundamentally a battle for control: Will politicians continue to control the retirement income of American women? Or will American women gain control over their own retirement destinies?

Those who oppose the privatization movement will take their place in the dark pages of American history alongside those short-sighted individuals in the 19th century who would have denied women their right to attend universities, own property and vote.

Women's Rights
Privatization of Social Security would benefit almost all women
Accrued Retirement Income of Mean-Income Women with Full Earnings Histories

This article originally appeared in the Investors Business Daily, October 14, 1998. It also appeared as a Cato Daily Commentary, Closing the Financial Gender Gap, October 15, 1998.