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Helping Women Get More Out of Social Security

By Kelly Greene, The Wall Street Journal

July 26, 2012

Elderly women rely more heavily on Social Security than men, in spite of the fact that what they get is significantly less.

A hearing yesterday by the U.S. Senate Special Committee on Aging offered some ideas for helping the country squeeze more value out of those benefits.

In 2010, for example, 16% of women age 65 and over had no income other than Social Security, compared with 12% of men. Divorce and widowhood played a large role in women’s dire retirement-income situation: Their household income fell by 41% after a divorce, almost twice what men experienced. In widowhood, women’s household income fell by 37%, while men’s fell by 22%, according to a report released yesterday by the U.S. Government Accountability Office.

Kelly O’Donnell, a vice president at Financial Engines, which provides advice and asset management to workers with 401(k) accounts, says that among the 401(k) plans with which it works, the median account balance for men age 60 and older is $82,000 – but only $46,000 for women in that age group.

For many people, “the best use of retirement accounts is as a bridge to fund retirement in the early years, allowing the deferral of Social Security benefits for as long as possible,” O’Donnell said in her written testimony. “I believe the challenges in getting someone to defer Social Security can be overcome if they are provided with a plan on how to optimize Social Security and with how to use their 401(k) or IRA as a bridge.”

Joan Entmacher, the National Women’s Law Center’s vice president for family economic security, suggested a number of fixes in her written testimony:

  • Credit caregiving in the Social Security benefit formula, since many workers, especially women, take time off to care for children and elderly parents. Entmacher suggests providing up to five years of credit for such caregiving, and crediting the worker with earnings of up to half of the average wage for that year.
  • Improve benefits for widowed spouses, since household Social Security payments drop at widowhood by 33% to 50%. Entmacher suggests providing an alternative benefit equal to 75% of the spouses’ combined worker benefits, capping it so it’s targeted to low- and moderate-income couples and improving benefits for disabled widows.

  • Use a different index to calculate the annual cost-of-living adjustment. Rather than using the current Consumer Price Index, which she says “underestimates teh effect of inflation on the elderly,” Entmacher recommends using the Consumer Price Index for the Elderly, which estimates the rate of inflation about 0.2 to 0.3 percentage point higher, because it gives greater weight to health-care spending.

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