Social Security: The Female Problem

By Melinda Tuhus, Women's eNews. Posted January 25, 2005.

The Bush administration is now putting on a robust campaign to dismantle Social Security and replace it with a system in which workers invest part of their payroll taxes into private investment accounts.

Last week Bush warned that the 70-year-old retirement program will soon be "flat bust, bankrupt" because of the looming retirement of baby boomers and the increasing longevity of the population as a whole.

The president won't present a detailed plan until February, but he and many of his top aides are already drumming up support and groups backing and opposing privatization are coming out with television and newspaper ads.

Both sides of the struggle over the program – which also provides disability income for workers and their families and survivors' insurance for the families of workers who have died – say women will be the greatest beneficiaries if their side wins and they are actively pursuing women's support.

Sixty percent of Social Security beneficiaries are women. A quarter of all women 65 and over depend on the program as their sole income and most of these women are poor.

Cornerstone of New Deal

Social Security was put in place 70 years ago as a cornerstone of the New Deal, the system of governmental programs established during the 1930s by President Franklin Delano Roosevelt to pull the country out of depression.

Backers say it has been tweaked over the years and needs to be tweaked some more. To ensure that the system does not run out, they say benefits could be cut slightly, the payroll tax could be raised slightly or the income level that is taxed for Social Security – now capped at $90,000 – could be raised.

Social Security defenders – including AARP, the advocacy organization for seniors – say the alarms about the system are false.

Meanwhile, the Social Security Administration and the Congressional Budget Office predict that the program, with no additional changes, will be able to cover retirement for everyone until the mid-21st century, after which it could still cover 70 percent of all retirees' payouts.

The Institute for Women's Policy Research, based in Washington, D.C., is lobbying to preserve the current system. In an analysis of U.S. Census Data, that say fully half of women over 65 would be poor without Social Security income.

Plenty of Social Insecurity

Meanwhile, plenty of women, such as Michelle LeMere, 33, worry about what will happen if Social Security is dismantled.

"I feel that I can't count on it being there for me when I retire," says LeMere, 33. She's married with two children, and has been paying into Social Security since she was 16. She says she invests "aggressively" in her 403b, the non-profit equivalent of a 401k offered by her employer, a Connecticut environmental organization. "People work so hard and I think they should be able to look forward to retirement. I think the system should be fixed. But with privatization there is no guarantee."

After reforms to the program in 1983, the government began taking in more money for Social Security than it expended and created a trust fund that is invested in U.S. Treasury bonds.

Proponents of privatization say this fund exists only on paper, since the money is used for general government expenses and would need to be replenished through cutting spending, raising taxes or borrowing more money.

But those who want to preserve the current system say the federal government will pay up, since the alternative – defaulting on the bonds – would create financial meltdown. (They also say that if President Bush's tax cuts are made permanent – another top priority of his administration – the budget shortfall thus created over the next 75 years would be five times the shortfall in Social Security over the same time period.)

Cato Promotes Privatization

The Cato Institute has been promoting privatizing Social Security for the past 25 years. A policy paper on its web site claims the average annual real return on U.S. stocks from 1926 through 1996 was more than 7 percent. It describes privatization as a "choice" that all retirees should have, and women in particular.

The Institute's Michael Tanner also considers it downright sexist to suppose that those less experienced in investing – those with lower incomes, and thus disproportionately women – can't make investments that are equally lucrative as those of more experienced investors. Tanner says women will benefit because everyone will benefit (historically the return on the stock market is higher than the return on bonds, which is where Social Security funds are invested now) and women will benefit disproportionately because women make up 60 percent of the beneficiaries.

But Sunhwa Lee, who specializes in older women's economic issues for the Institute for Women's Policy Research, say privatizing runs too much of a risk of increasing poverty among the elderly.

"I think the Cato claim is painting too rosy a picture about our stock market performance, which we all know is not true given our recent experience," Lee told Women's eNews. "Most stock market analysts say past performance is never a good guide for future performance. Stocks tend to yield higher returns than bonds, typically because investing in them runs a higher risk. The bottom line is that we cannot afford to put our basic tier of retirement income at risk."

Estimates Scaled Back

Tanner says his organization has scaled back its estimated future rate of return to a more conservative 6.5 percent, and with a 50-50 mix of stocks and bonds he believes a 5 percent return is very realistic. "The current system is not sustainable," he said, "with too few workers supporting a growing number of retirees."

An article in the January bulletin of AARP points out another bone of contention: "If current workers divert some of their Social Security payroll taxes into private accounts, the government would have to make up the difference to cover benefits. Estimates for such transition costs range between $1 trillion and $2 trillion over 10 years."

Tanner responds, "There will be short-term costs to privatization, but it will save money in the long-term."

With momentous shifts possibly in the offing, Americans facing the most secure retirement are those currently in their 50s and 60s. They won't be affected – for good or ill – by any of these proposed changes.

Melinda Tuhus writes on issues of social policy affecting women.

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