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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 a business.

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.




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