Questions and Answers on Women and Social Security Privatization

The answer is simple. Women live longer than men. On average, women today who reach 65 outlive men by 4 years. That is, women can expect to live to age 85, while men are likely to live to age 81. We just have to look around us for evidence of women's longevity. Nursing homes are predominately filled with women. In fact, among people 85 years and over, over 70 percent are women. For most women, Social Security is their bedrock.

What Are the Protections that Social Security Offers Women?

Social Security has two protections that are particularly important to women. First, Social Security has a benefit that lasts as long as you live. Second, it has a cost-of-living adjustment to protect against increases in the prices of the things you buy. If your income does not keep up with prices, you will become poorer and poorer with each passing year. Women can count on these two features of Social Security to protect them, regardless of their longevity.

Don't Women Have Pensions and Other Savings to Protect Them?

No. Women are less likely to have an employer pension than are men. According to the Employee Benefit Research Institute, only 28 percent of women received income from pensions, compared with 43 percent of men. Moreover, when a woman does have a pension, it is likely to be smaller than a man's. Among today's retirees, the average private pension benefit for women is only about 65 percent of benefits received by men.

Why Are Women Less Likely To Have a Pension and Other Savings?

Women who are employed full-time earn 23 percent less than men. In addition, women are more likely to have low-wage part-time jobs or to take time out of the workforce to care for their children. The typical woman is in the workforce for 32 years, compared to 44 years for men. This shorter work history combined with lower wages means that the lifetime earnings for women are on average lower than for men.

Does the Reduced Pension Income Mean That Women Are More Reliant on Social Security Than Men Are?

Yes. Nearly two-thirds of all Social Security retirees are reliant on their Social Security benefits for most of their income. This includes both men and women. The statistics do not tell us how many women rely on Social Security for most of their income, but we can guess from what we know about the lack of pension income and other savings for women that women are more reliant on Social Security than are men.

Would Privatizing Social Security Hurt Women?

Yes. Privatizing Social Security would replace traditional Social Security benefits with individual investment accounts. Under most privatization plans, only a minimal Social Security benefit would remain. The size of the individual's retirement nest egg would depend on the success of his or her investments. The two longevity protections of Social Security -- the cost-of-living adjustment and the guarantee that your retirement income will last as long as you do - would nearly disappear.

Could You Outlive Your Retirement Assets Under Privatization?

Yes. Under privatization, each individual is responsible for deciding how to parcel out funds from the individual account over his or her own lifetime. If the individual makes a bad guess about longevity, his or her money may run out. Likewise, if the individual has unforeseen expenses or if the prices of everyday purchases rise faster than expected, his or her assets may be depleted.

Could You Purchase an Annuity to Avoid the Risk of Outliving Your Assets?

Yes, but it would reduce your nest egg. You could use the money in your account to purchase an annuity. Then, the company from which you purchase the annuity, such as an insurance company, would bear the risk of how long you might live. The insurer would be willing to bear this risk because it employs actuaries, who know a lot about life expectancy. Moreover, the insurer would reduce its risk by including you in a pool of all the people it insures. However, the company would charge you a fee for taking the risk, and you would then have less money in retirement.

What About Being Able to Inherit Your Husband's Account? Wouldn't That Help You?

Maybe. You could inherit whatever funds your husband had not used before he died. However, his fund might have been depleted for many reasons, including an inaccurate guess about his own longevity; increased family expenses; or the cost of his last illness. There is no guarantee that your husband's account would have any assets remaining to pass to you.

Government Relations and Policy, April 2010