 |
The Benefits of Social Security Privatization for Women
by Ekaterina Shirley and Peter Spiegler
Ekaterina Shirley and Peter Spiegler are graduate students at the John F. Kennedy School of Government, Harvard University.
Executive Summary
The economic case for privatization as a response to Social Security’s
insolvency problems has been made extensively in the academic and policy literature.
How privatization would affect various social groups, however, has remained
largely unaddressed. There are reasons to be especially concerned about
the impact of reform on women. Women are known to be disproportionately dependent
on Social Security benefits in their old age and because of longer life expectancy
and employment patterns, an elderly woman is twice as likely to be living in
poverty as is an elderly man.
Although the Social Security system is gender neutral on its
face, it produces some financial outcomes that place women at a disadvantage
in retirement compared with men.
- The employment patterns of women, characterized by fewer years in the
labor force, lower earnings, and more frequent job changes, translate into
lower Social Security benefits.
- The dual-entitlement rules of the system often impose a penalty on wives
and widows of two-earner couples.
- The loss of up to 50 percent of a couple’s benefit at the husband’s
death throws every fifth widow into poverty.
Those outcomes are exacerbated by women’s disproportionate
dependence on Social Security benefits. As a result of low private asset accumulation
and inadequate or absent supplementary pension coverage, on average, nonmarried
women over 65 rely on Social Security for 72 percent of their retirement income.
Forty percent of that group rely on Social Security for 90 percent or more of
their retirement income.
Contrary to some criticisms raised in the course of the Social
Security reform debate, our analysis demonstrated that privatization of Social
Security in fact would offer tangible financial benefits to women. If higher
rates of return are realized on investments in the private capital markets,
privatization is likely to boost the retirement savings of both men and women.
Indeed, this study finds that
- Virtually all women would be better off (most significantly) under
a system of individually owned, privately invested accounts than under the
current Social Security system.
- A fully privatized Social Security system with earnings sharing between
spouses provides greater benefits to women than does a partially privatized,
two-tiered system.
- Contributions to personal accounts could be reduced to as little as 7
percent of covered earnings and still provide all categories of women (single,
divorced, married, widowed) with significantly higher retirement benefits
than does Social Security. That would allow the remaining 5.4 percent of
the current payroll tax to be used to provide disability benefits, help
finance transition costs, protect against market risk, or even provide a
tax cut at some point in the future.
Index of Social Security Choice Papers
|
|
