Women and Family Issues

Women and Social Security: Are Private Accounts the Answer?

A study published by the Center on Budget and Policy Priorities, a research and policy analysis institute in Washington, D.C., confirmed what many observers of the Social Security reform debate already believe: Social Security helps to keep one of every three elderly Americans above the poverty line, and women rely more heavily on it than men for retirement income.

This policy group’s report corroborates the findings in the AICPA study Understanding Social Security: The Issues and Alternatives (see “AICPA Initiates Debate on Social Security Reform,” JofA, Jan.99, page 11). That study, published at the end of last year, revealed older women were twice as likely as men to live in poverty. It also showed that elderly single women (including widows and divorcees) were the worst off; their poverty rate was more than five times that of married women.

“Clearly, women are the most at-risk group if Social Security runs into trouble,” said Judyth A. Swingen, CPA and professor at the College of Business, Florida Gulf Coast University. “Poverty rates for women are double the rates for men,” said Swingen, who served as a member of the 1998 AICPA task force on Social Security reform.

With the goal of closing the gap between the sexes, panels of experts discussed the benefits and drawbacks of private Social Security accounts during a recent hearing of the Senate’s Special Committee on Aging.

“A critical question in the Social Security debate is how we can improve the income security of current and future American women,” said committee chairman, Senator Chuck Grassley (R-Iowa). “I believe individual accounts are part of the solution.”

Senator John Breaux (D-Louisiana), also a member of the Special Committee on Aging, said, “Individual accounts will give women, many for the first time, flexibility and access to the equity market to help them retire with financial independence.”

Grassley enumerated the ways in which women might benefit from private accounts:

• Individual accounts could provide flexibility and ownership of tangible assets to older women.
• Such accounts could lessen the disparity between families in which both spouses work outside the home and families in which only one spouse works outside the home.
• Individual accounts would allow women who temporarily leave the workforce to continue to increase their account balances through the investment earnings on their accounts.

For Swingen, however, individual accounts are not a panacea for Social Security’s problems. Not only would individual accounts be riskier than the current system, but they also would result in higher administrative costs.

“When I started working on the task force, I was convinced private accounts were the way to go,” she said. “But the more we got into it, the less sure I was that private accounts were the solution for women or anybody.”

Swingen outlined some of her concerns about private accounts:

• Equity markets are risky. What happens if the market takes a downturn? Would the federal government be required to prop up retirement savings in private accounts?
• What would happen to the market overall? Huge amounts of money would be transferred from government bonds into the stock market. What would be the effect of that investment infusion on the market?
• What impact would private accounts have on the cost of government borrowing? Right now the government has a very good deal. It can borrow money from the Social Security fund at fairly low rates. If money were diverted into private accounts, it would raise the cost of capital for government borrowing.
• Would there be restrictions on investment? Would there be a list of approved and nonapproved stocks for investment by the private accounts? Would investment of private accounts be restricted to U.S. stocks?

Private accounts might produce higher returns than the current system, Swingen said, but administering such accounts would be difficult, and heavy investments in the equity market could become a political football.

Moreover, she observed that private accounts would not necessarily correct the disparity in retirement income between men and women. Such accounts would not change the fact that many women will have fewer retirement contributions on which to earn a return.

“Inequities exist,” she said, “because of imbalances in pay scales. If you’ve earned less in your lifetime you will receive less in your retirement. If you took time off to raise a family, there was a period you were not making contributions.”