How Privatizing Social Security Would Affect Women and Children

1
How Privatizing Social Security Would Affect
Women and Children

• Joan Entmacher February 2005
• Vice President and Director,
• Family Economic Security
• National Womens Law Center
• 11 Dupont Circle NW
• Suite 800
• Washington, DC 20036
• [phone]
• www.nwlc.org

2
Social Security Provides Lifelong Family
Protections

• Social Security replaces lost income for workers
  and their spouses and children when a worker
• becomes disabled,
• dies or
• retires.
• For a young family, Social Security provides the
  equivalent of a
• 400,000 life insurance policy and
• 350,000 disability insurance policy.
• Source U.S. Social Security Administration,
  Present Values of Benefits to Illustrative
  Survivors and Disability Cases, Memorandum to
  Stephen Goss, Chief Actuary (2001).

3
Social Security Is More than a Worker Retirement
Program

• Just half of all Social Security beneficiaries
  receive benefits solely as retired workers.

Source U.S. Social Security Administration,
Annual Statistical Supplement to the Social
Security Bulletin, 2003 (2004), Tables 5.A5, 5.G1.
4
Social Security Supports More Children than TANF

• Social Security provides family income to about
  5.4 million children under age 18, TANF to about
  4 million children.
• Social Security childrens benefits are adjusted
  annually for inflation and continue to age 18 (19
  if in high school).
• Social Security provides lifetime income support
  to about 750,000 disabled adult children, based
  on a parents work record.
• Sources Catherine Hill and Virginia Reno,
  Childrens Stake in Social Security, National
  Academy of Social Insurance, Social Security
• Issue Brief No. 14 (2003) Social Security
  Administration. Annual Statistical Supplement,
  2003, Table 5.A1.3 Social Security
  Administration, Office of the Chief Actuary,
  Effect of COLA on Social Security Benefits
  (October 2004).

5
Childrens Benefits Are Especially Important to
Families of Color
Source Social Security Administration, Annual
Statistical Supplement, 2003, Table 5.A6.
6
Social Security Is a Vital Safety Net for Elderly
Women.

• Social Security provides 90 or more of the
  total income for
• 44 of all nonmarried women 65 and older
• 74 of nonmarried African American women 65 and
  older
• 66 of nonmarried Hispanic women 65 and older
• 35 of all nonmarried men 65 and older
• Older Americans in the lowest income quintile.
• Social Security prevents massive poverty among
  the elderly.
• Without Social Security, over half of all women
  65 and older (married and nonmarried) and 40 of
  all older men would be poor.
• Social Security lifted nearly seven million older
  women and 4.7 million older men out of poverty in
  2000.
• The income that Social Security provides to the
  elderly benefits multiple generations, easing the
  financial burden on adult children who are
  raising and saving for their own families.
• Sources U.S. Social Security Administration,
  Income of the Population 55 and Older, 2002
  (forthcoming), Table 6.B4 Income of the
  Population 55 and older 2000 (2002), Table 8.3.

7
The Impact of Privatization on Women and Children

• Privatization would divert money from Social
  Security and add to record deficits.
• Trillions of dollars needed to pay todays
  beneficiaries would be shifted from Social
  Security into private accounts.
• To fill the hole in Social Security, trillions of
  dollars would be borrowed, increasing deficits
  and forcing deeper cuts in other programs vital
  to women and children.
• Social Security benefits would be cut.
• Leading plan (Commission plan 2) would change the
  Social Security benefit formula (shift from wage
  indexing to price indexing), providing future
  generations with a smaller and smaller percentage
  of pre-retirement earnings.
• Sources Report of the Presidents Commission to
  Strengthen Social Security, Appendix, Memorandum
  to the Co-Chairs from the
• Office of the Chief Actuary (2002), p. 75 Robert
  Greenstein, Center on Budget and Policy
  Priorities, So-Called Price Indexing
• Proposal would Result in Deep Reductions Over
  Time in Social Security Benefits (2004).

8
The Impact of Privatization on Women and Children

• The lower benefits under the new formula would
  apply to all future beneficiaries, including
• Those who choose to not participate in a private
  account
• Widows
• Children
• Disabled workers.
• Commission plan 2 includes adjustments to
  mitigate these cuts for some low earners and
  widows, but their benefits still would end up
  below current levels.
• Sources Actuaries Memo to Commission
  Greenstein, Price Indexing Would Result in Deep
  Benefit Reductions.

9
The Impact of Privatization on Women and Children

• For those who contribute to a private account,
  Social Security benefits would be reduced
  further.
• For an average earner retiring in 2042, price
  indexing would cut benefits by 26 the
  additional cut (offset) would be 21, for a total
  benefit reduction of 47.
• For an average earner retiring in 2075, price
  indexing would cut benefits by 46 the
  additional cut (offset) would be 23, for a total
  benefit reduction of 69.
• Cuts in benefits fall more heavily on those who
  are more reliant on income from Social Security.
• Source Report of the Presidents Commission,
  Actuaries Memo, p. 75.

10
Why Private Accounts Are Unlikely to Make Up for
the Cuts in Social Security

• Even for those who work and contribute until
  retirement, CBO projects that private accounts
  are unlikely to make up for the cuts in Social
  Security, taking account of risk
• For children born in this decade, Social Security
  plus the account would provide just 55 of the
  income due under the current system (14,600
  instead of 26,400).
• If this plan were in effect today, typical
  widows benefit would drop from 865 per month to
  476 per month35 below the poverty line.
• Sources Congressional Budget Office, Long-Term
  Analysis of Plan 2 of the Presidents Commission
  to Strengthen Social
• Security (2004), Table 2 National Womens Law
  Center, Social Security Women, Children and the
  States (2005)

11
Why Private Accounts Are Unlikely to Make Up for
the Cuts in Social Security

• When working lives are cut short by early
  disability or death, private accounts will be too
  small to make up the difference.
• The National Urban League found that the account
  of an African American male dying in his 30s
  would cover less than 2 of Social Security
  survivor benefits for his widow and children.
• Under the plans of the Presidents Commission,
  neither disabled workers nor widows could access
  their accounts or their spouses until they
  reached retirement age (but if they could access
  the account early, they would have even less at
  retirement).
• Sources Maya Rockeymoore, National Urban League,
  Social Security and African Americans Debunking
  the Myths (2001)
• Report of the Presidents Commission.

12
Why Private Accounts Are Unlikely to Make Up for
the Cuts in Social Security

• A private account cannot duplicate the range of
  protections available when risks are shared
  through Social Security
• Life and disability insurance
• Guaranteed, predictable benefits that dont
  fluctuate with the stock market and cant be
  outlived (annuities are costly and very sensitive
  to market conditions at conversion)
• Annual cost-of-living adjustments
• Automatic and supplementary spousal benefits and
• Progressive benefit formula that provides a
  higher percentage of pre-retirement income to
  lower earners.

13
Social Security Faces a Manageable Long-term
Shortfall, Not a Crisis

• Social Security can pay 100 of promised benefits
  for about 40-50 years and 70-80 after that,
  according to Social Security Trustees and CBO.
• Modest adjustments could ensure the payment of
  100 of benefits for the next 75 years indeed,
  the cost of the 2001-2003 tax cuts for just the
  top one percent of households is larger than the
  entire Social Security shortfall that CBO
  projects.
• Source Robert Greenstein, Peter Orszag and
  Richard Kogan, Center on Budget and Policy
  Priorities, The Implications of the
• Social Security Projections Issued by the
  Congressional Budget Office (2004).

14
Conclusion

• For the economic security of women and children,
  Social Security can be and must be strengthened
  privatization weakens Social Security for those
  who rely on it most.