The Economic Challenges facing Women as They Age

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The Economic Challenges facing Women as They Age

Here are excerpts from Dr. Alicia Munnell’s Keynote Address at the November 2002 “Women and Aging: Issues for Life” organized by the New York Citizens’ Committee on Aging Conference in New York City. For more information call the NYCCOA at 212 353 3950 or email : info@nyccoa.org.

The Economic Challenges Facing Women as They Age was the focus of a citywide conference organized by the New York Citizens’ Committee on Aging.

The keynote speaker, Alicia Munnell, Ph.D., addressed a standing room only audience at the Cherkasky / Davis Conference Center on November 13, 2002. She discussed women’s issues of income security, inequalities and inadequacies; gender issues of Social Security, SSI and the financing of pension programs.

Munnell is the Peter F. Drucker Chair in Management Sciences at the Boston College Carroll School of Management and Director of the Boston College Center for Retirement Research.

Munnell reported that since 1966, the economic status of older adults has improved dramatically. However, she stated that the number of poor, especially among non-married women, has risen. To further compound this problem, Dr. Munnell pointed out that non-married women represent the majority of households at older ages.

She outlined the reasons so many women end up in poverty: Retirement income is based on earnings and women have lower earnings than men ($29,215 vs. $38,275); women live longer than men, and their retirement incomes drop when their husbands die. She went on to say that women’s lifetime earnings are impacted by the reality that many women work part-time and spend fewer years in the workforce (32 years vs. 44 years).

An important issue shaping women’s employment, according to Munnell, is caregiving. Women are more likely to use up their sick and vacation time, decrease their work hours, take leaves of absence, go from full-time to part-time work, resign, or have no choice but to retire early.

As a result of their work patterns, women’s Social Security benefits continue to depend, at least in part, on their husband’s earnings. She pointed out that only 31% of women (vs. 55% of men) receive private pension benefits and when they do, their benefits are significantly smaller than men’s ($5,230 vs. $11,784). Consequently, non-married women are poor from an early age, while married women who share in their husband’s benefits do better.

While marriage may appear an advantage, Dr. Munnell reminded the audience that women live longer than men and when widowed, their Social Security benefits are reduced.

Munnell reported that for 41% of women, their husband’s private pension benefits disappear entirely upon their husband’s death. And, she pointed out that over time, inflation erodes the purchasing power of non-indexed income.

Regarding the future, Dr. Munnell reported on the changing status of women: more women are working, but, divorce has increased. While more women working will raise future earnings, she stated that an increase in divorced and never-married women will raise the poverty rate.

Dr. Munnell addressed how Social Security cuts and reliance on 401(k) plans will make retirement more difficult for women. She stated that Social Security cuts will hurt women because they will lose advantages of a progressive benefit formula, family-related benefits, and inflation-indexed annuities. She pointed out that the shift from a defined benefit to 401(k) plans will hurt women because they will lose automatic unisex annuitization, they no longer will have joint and survivor benefits as the default, and, they will risk outliving their resources.

In her closing remarks, Munnell stated that the bedrock of our retirement system is Social Security – a program that provides progressive predictable benefits indexed by inflation. She stated that Social Security’s image is favorable as nearly all Americans have bought into the system and thus will receive benefits.

At the same time, Munnell pointed out that even with no further legislation, retirees will experience a reduction in Social Securitybenefits because of the graduated postponement of retirement age.

Munnell offered several recommendations to improve the economic future for women:

· Preserve Social Security Dr. Munnell recommended that efforts be resisted to cut back on Social Security’s progressive defined benefit program. She urged that changes be made within Social Security to improve women’s benefits, including reducing the penalty for caregiving, for example, by providing explicit credit. She recommended there be an increase for widows to 75% of the couple’s benefit. She also supported providing widows with a delayed retirement credit. She said that widows do not benefit from their husband’s delayed retirement credit and that it would help if some adjustment were made in the widow’s benefit to reflect the retirement credit.

· Preserve Social Security

Dr. Munnell recommended that efforts be resisted to cut back on Social Security’s progressive defined benefit program. She urged that changes be made within Social Security to improve women’s benefits, including reducing the penalty for caregiving, for example, by providing explicit credit. She recommended there be an increase for widows to 75% of the couple’s benefit. She also supported providing widows with a delayed retirement credit. She said that widows do not benefit from their husband’s delayed retirement credit and that it would help if some adjustment were made in the widow’s benefit to reflect the retirement credit.

· Strengthen Private Pensions

            Munnell called for adoption of unisex annuity payments;
           annuitization of 401(k) pension plans;    and, inflation indexation of
           benefits.

· Expand Supplemental Security Income Program

            Munnell recommended an increase in the income disregard,
            indexed for inflation; and an adjustment to the asset limit, also
            indexed for inflation.

· Introduce a new layer of universal pensions

            She stated that since only 50% of the workforce is covered by
            private pensions, this could take the form of funded defined
            contribution plans, such as USA accounts, with subsidies to
            low-income participants.

Following her prepared remarks, Dr. Munnell responded to questions from the audience. In response to a question about universal availability of pensions, Munnell said that her preference is to leave Social Security the way it is. Although she is suggesting adding another level of protection to Social Security, she is concerned that people may use this to justify cuts to Social Security. She believes the only way to improve the long-term outlook for Social Security is to put more money into the system, and perhaps get a higher return on investments in the Trust Funds.

However, in the Social Security debate, the public is informed by Republicans that individual accounts need to be established; and although she feels that individual accounts, by themselves, will not improve Social Security financing, Democrats seem to be afraid to address this so as not to appear they are proposing only painful solutions.

Munnell urged Democrats to propose constructive options to add money into the system through means other than a payroll tax. She said that much of what the payroll tax goes for is to make up past benefits. She said that while some general revenue support can be justified, policies such as the $1.3 trillion tax cut is preventing any intelligent discussion about solutions.

To a question regarding the impact of welfare reform on Social Security, Munnell stated that insufficient attention is being paid to this issue. She agreed that persons with low incomes previously on welfare – many of whom are single women with children who are now working - will find their retirement incomes inadequate.

Regarding a comment about the transfer of Social Security trust fund money to individual retirement accounts, Munnell said that payment of 2% of Social Security funds to private accounts will take away money needed for benefits already promised. According to Dr. Munnell, infusion of revenues over what is “laughingly described” as a 30-40 year transition period will result in smaller benefits to beneficiaries in the traditional program. This process will exacerbate the Social Security situation over the next 75 years.

To a question regarding the link between caregiving and a woman’s lifetime earnings, Dr. Munnell noted that women earn less not because they are ineffective, but because they are in the workforce for a shorter period of time – first to care for their children, and then for aging parents. She believes the goal should be to share caregiving more broadly and to introduce some flexibility into retirement income so that caregiving responsibilities do not penalize women.

DFTA Commissioner Edwin Mendéz-Santiago asked about prospects for an increase in SSI benefits. Munnell responded that although in today’s “ice age” it was not likely, it remained a critical issue. It is as important to keep Social Security a wage based system, as it is to strengthen SSI. She stated that there is fallacious argument that we will not have to worry about low-income people as they will get a large minimum benefit. Munnell believes we need both a good Social Security system for everyone as well as a good system to deal with poverty for those who have low earnings throughout their live   s. Munnell urged the audience to push hard for an effective SSI program.

A question was asked about the impact of involvement in Iraq on the budget for income support programs. Dr. Munnell responded that the analyses that she has seen indicate that the budgetary impact of war in Iraq will be “small potatoes” compared to the current tax cuts and those proposed for the future (estimated $300 billion v. $1.3 trillion tax cuts).

In closing, Dr. Munnell stated that the conference focus is of critical importance to women and to the American society as a whole.

__________________________

In addition to Boston College, Dr. Munnell is the co-founder and first President of the National Academy of Social Insurance and Trustee of The Century Foundation. She served on the President’s Council of Economic Advisors, was Assistant Secretary for the US Treasury for Economic Policy, and Senior Vice President and Director of Research with the Federal Reserve Bank of Boston.