Increase Font Size | Decrease Font Size
by Alicia Munnell, Ph.D.
Highlights of the Keynote Address Presented at the New York Citizens' Committee on Aging November 13, 2002 Conference WOMEN AND AGING: ISSUES FOR LIFE
Alicia Munnell, Ph.D., is the Peter F. Drucker Professor of Management Sciences at the Boston College Carroll School of Management, and the Director of the Boston College Center for Retirement Research. She is a Member of the Board of Trustees of The Century Foundation; Co-Founder and first President of the National Academy of Social Insurance; Former Member of the President's Council of Economic Advisors; Former Assistant Secretary of the Treasury for Economic Policy; and Former Senior Vice President of the Federal Reserve Bank of Boston.
Alicia Munnell, Ph.D. was the keynote speaker at the November 2002 conference sponsored by the New York Citizens' Committee on Aging that focused on the Economics of Aging as It Impacts Women. Dr. Munnell addressed The Economic Challenges Facing Women as They Age including women's issues of income security, inequalities and inadequacies; gender issues of Social Security and SSI, and the financing of pension programs.
Munnell reported that since 1966, the economic status of older adults has improved dramatically.1 However, she stated that the number of poor, especially among non-married women, has risen.2 To further compound this problem, Dr. Munnell pointed out that non-married women represent the majority of households at older ages.3
She outlined the reasons so many women end up in poverty:
- Retirement income is based on earnings and women have lower earnings than men (Women employed full-time earn only 76% of what men earn: $29,215 vs. $38,275).4
- Women's lifetime earnings are impacted by the fact that many women work part-time5 and spend fewer years in the workforce (32 years vs. 44 years).6
According to Munnell, caregiving is an important issue shaping women's employment. Women are more likely to exhaust 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.7
As a result of their work patterns, women's Social Security benefits continue to depend, at least in part, on their husband's earnings.8 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).9 Consequently, non-married women are poor from an early age, while married women who share in their husband's benefits do better.10
While marriage may appear to be an advantage, Dr. Munnell reminded the audience that women live longer than men.11 She reported, also, that when widowed, women's income plunges: Social Security benefits are reduced by between one-third and one-half; and private pension benefits either disappear entirely (41% of women), or are reduced by one-third (59% of women).12
She pointed out that over time, inflation erodes the purchasing power of non-indexed income and showed how over a forty year period with 3 % inflation, the purchasing power of $100.00 achieves a value only of about $30.00.13
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,14 she stated that an increase in divorced and never-married women will raise the poverty rate.15
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 the 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.
Professor 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, she pointed out that even with no further legislation, retirees will experience a reduction in Social Security benefits because of the graduated postponement of retirement age.
Professor 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 an increase for widows to 75% of the couple's benefit, and 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 to reflect this credit.
- STRENGTHEN PRIVATE PENSIONS: Dr. Munnell called for adoption of unisex annuity payments; annuitization of 401(k) pension plans; and inflation indexation of benefits
- EXPAND SSI (SUPPLEMENTAL SECURITY INCOME PROGRAM): Professor Munnell recommended an increase in the income disregard, indexed for inflation, and an adjustment tot eh asset limit, also indexed for inflation.
- INTRODUCE A NEW LAYER OF UNIVERSAL PENSIONS: Dr. Munnell stated that since only 50% of the workforce is covered by private pensions, the "new layer of universal pensions" 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 the universal availability of pensions, Munnell said that her preference is to leave Social Security the way it is. Although she suggests adding another level of protection to Social Security, she is concerned that people may use this to justify cuts to the program. She stated that 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.
She cautioned, though, that in the Social Security debate, Republicans inform the public that individual accounts need to be established; and while she believes that individual accounts, alone, will not improve Social Security financing, she stated that Democrats seem to be afraid to address this so as not to appear they are proposing only painful solutions.
Dr. 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, she believes that policies such as the $1.3 trillion tax cut prevent any intelligent discussion about solutions.
To a question regarding the impact of welfare reform on Social Security, Munnell stated that this issue receives insufficient attention. 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 incomes inadequate.
Regarding a comment about the transfer of Social Security Trust Fund money to individual retirement accounts, Dr. 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, she stated, will exacerbate the Social Security situation over the next 75 years.
In response 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.
Commissioner Edwin Méndez-Santiago of the New York City Department for the Aging asked Dr. Munnell about the prospects for an increase in SSI benefits. She responded that although in today's "ice age" it was not likely, it remained a critical issue. Dr. Munnell stated that she believes that it is as important to maintain Social Security a wage based system as it is to strengthen SSI. She stated that there is a fallacious argument that we will not have to worry about low-income people as they will receive a large minimum benefit. She believes we need both a good Social Security system for everyone as well as a good system to deal with poverty for those with low earnings throughout their lives. Munnell urged the audience to push hard for an effective SSI program.
In closing, Professor Munnell stated that the focus of the conference was of critical importance to women and to American society as a whole.
_______________
1 US Bureau of the Census. 2001. "Poverty in the United States."
2 Social Security Administration. 2002. "Income of the Aged Chartbook 2000."
3 Social Security Administration. 2002. "Income of the Aged Chartbook 2000."
4 United States Bureau of the Census. 2002. "Money Income in the United States : 2001 (September)."
5 Bureau of Labor Statistics. 2002. "Current Population Survey: 2001 (March)."
6 Social Security Administration. 2002 "Fact Sheet: Women and Social Security 1999."
7 Metropolitan Life Insurance Company. 1999. "The MetLife Juggling Act Study: Balancing Caregiving with Work and the Costs Involved (November)."
8 Social Security Administration. 2002 "Annual Statistical Supplement 2001."
9 US Department of Labor. 1995. "Retirement Benefits of American Workers, New Findings from the September 1994 Current Population Survey."
10 Social Security Administration. 2002. "Income of the Aged Chartbook 2000."
11 Social Security Administration. 2002. "The 2002 Annual Report of The Board of Trustees, Federal Old Age and Survivors Insurance and Disability Insurance Trust Funds."
12 Holden, Karen C. and Cathleen Zick. 1998. "Insuring against the Consequences of Widowhood in a Reformed Social Security System." In Framing the Social Security Debate, edited by R. Douglas Arnold, Michael J. Graetz, and Alicia H. Munnell, pp. 157-169.
13 Author's calculations.
14 US Bureau of the Census. 2001. "Statistical Abstract of the United States."
15 Butrica, Barbara, Lee Cohen and Howard Iams. "Introduction and Findings from the MINT Project. Presented at the First Annual Joint Conference for the Retirement Research Consortium, May 20-21, 1999.