Privatization of Social
Security - A Threat to Women: Part 2
by Edith U. Fierst, Attorney at Law
Member, Social Security Advisory Council
Unlike the current Social Security
system, which pays benefits every month
for life, most of the privatization
plans make the individual account available
without restriction to the beneficiary.
He (usually) has complete freedom to
spend it as he wishes. A likely first
use would be to pay debts. Some may
take the remainder to Las Vegas. Or
use it to endow a girl friend or buy
Probably most would try to spread
it over a lifetime but they will have
difficulty doing so. For one thing,
few people realize that at age 65 men
have a life expectancy of 15.3 years
(to over age 80) and women of 19.1 years
(to over age 84). The family money must
also be stretched to cover the age difference
between husband and wife, in the typical
case, three years.
The above figures are averages only.
Some retirees will die younger, but
others will live longer.
The only sure way to provide a lifetime
income is through an annuity which pays
benefits every month for life. Social
Security does this, and goes one step
further, adding a cost of living supplement.
It promises that the income payable
to a beneficiary at age 65 will continue
for the rest of his or her life (or
increase in widowhood) and will keep
its purchasing power. Nothing similar
is available in the private market.
No private company can risk the costs
of high inflation, such as we had, for
example, in 1980 when inflation exceeded
14 percent. A Federal bond has recently
been announced with inflation protection;
it remains to be seen how popular that
will be, since it pays little interest
above the COLA (cost-of-living adjustment).
Moreover, buying a private annuity,
even without inflation protection, is
costly since insurance companies and
other purveyors of lifetime annuities
have found that so many of their customers
live longer than average. Those who
have life threatening illness do not
buy annuities. Naturally, insurance
companies charge to compensate themselves
for adverse selection by their customers.
Some retirees will weigh their options
and decide that buying an annuity is
too expensive. After all, they and their
spouses could die young, and they will
have surrendered their assets to the
insurance company for naught.
If we abandon Social Security in favor
of privatization, we must expect that
many people will outlive their incomes.
The guaranteed minimum that advocates
of privatization favor ($410 a month
for retirees, $205 for their spouses)
is too small to keep the elderly from
destitution. Some will seek SSI (welfare
for the elderly), which the rest of
us pay for through the income tax.
We do not need to take such extreme
measures. Social Security can be saved
with small changes, such as raising
the retirement age or bringing state
and local government employees under
mandatory coverage. Indeed, instead
of destroying the security Social Security
now offers to women, we should be looking
at ways to improve it.
One excellent proposal that would
benefit married women is to increase
the survivor annuity for survivors of
two- earner couples. As mentioned in
February's article, survivor benefits
are the greater of the survivor's own
earned benefit or that of her spouse.
There is no combining of the two and,
thus, no opportunity for women who have
worked but whose husbands had greater
earnings to increase their survivor
annuity above what they would have received
if they had never worked.
The proposal to improve Social Security
is to increase survivor benefits from
the current benefit earned by either
husband or wife to three-quarters of
their combined benefits. This would
retain current levels of survivor and
some of these would lose little (the
difference between the wife's spouse
benefit and her worker benefit.) Moreover,
such cuts would not be a severe problem
for those couples in which the wife
has earned small, or no, benefits because
most such couples are relatively affluent.
Indeed, the poverty rate among married
couples generally is minor.
Among the proposed changes to save
money without privatizing is one I am
against, namely, increasing the computation
period from 35 to 38 years. This would
mean basing benefits on earnings during
38 years of employment. But fewer than
a third of women retiring in the next
25 years are expected to have worked
38 years. Many women are still taking
time out, part-time or full-time, to
care for their young children. I believe
this is a good thing, and that women
should not be pressured by fear of poverty
in old age into working when they feel
their families need them.
Excerpted from WOMANSWORD, Vol. 2,
Issue 3, March 1997 Issue.