Privatizing Social Security: Not Many Dividends for Women

Article excerpt

Women would get a dandy deal from privatization of the Social Security system.

Or would they?

Two new graduates of the Kennedy School of Government, Harvard University, maintain they would.

"Virtually all women would be better off (many significantly) under a system of individually owned, privately invested accounts than under the current Social Security system," Ekaterina Shirley and Peter Spiegler write in a new study.

But whoa!

Women better look at the study's assumptions before buying this view.

More likely, privatization would increase the risk of retired women living in financial misery.

Notes a study by the Institute for Women's Policy Research: "It is essential to maintain the social insurance aspects of the current system in order to ensure that women, especially widows and other non-married women, are not thrust into poverty as a result of changes in Social Security policies."

There's no doubt women need to be concerned about their financial security in retirement. Women typically earn less than men, work 11 fewer years, and live longer than men. So women receive, on average, lower Social Security benefits than men.

Poverty rates among elderly women are twice as high as for elderly men: 13.6 percent vs. 6.2 percent. Women in general accumulate fewer financial assets than men and aren't so likely to have a company pension. As a result, on average nonmarried women over 65 rely on Social Security for 72 percent of their retirement income. Of that group, 40 percent get 90 percent of their retirement income from Social Security.

Aware of this situation, 39 Democratic women in the House of Representatives sent a letter in July to President Clinton and Vice President Al Gore asking them to address women's interests in the debate over Social Security.

The Shirley-Spiegler paper is distributed by the CATO Institute as part of its Wall Street-financed effort to promote privatization.

One problem with the paper's comparison of privatization and Social Security benefits is the annual rate of return - 6.2 percent - that Ms. Shirley and Mr. Spiegler assume in reckoning how much the money contributed to a private plan would grow by retirement time.

For one thing, it ignores administrative costs for private plans. Mutual-fund costs generally run about 1 percent a year of the portfolio. It might have to be higher for the small amounts many low- income women would be setting aside each year.

In Britain and Chile, administrative and sales costs have been even higher for privatized pension plans. …