Testimony of Jane L. Ross, Deputy Commissioner for Policy,
Social
Security Administration
before the Senate Special Committee on Aging
Little Rock, Arkansas
June 1, 1999Today I will
outline for you the importance of Social Security to elderly women and
discuss some of the most important features of Social Security that
contribute to their economic well-being. Then I will discuss the
relationship between Social Security and poverty among elderly women, and
the President's framework for Social Security reform. Then, of course, I
would be happy to respond to your questions.
Importance of Social Security
For 60 years, Social Security has provided a solid floor of financial
protection in the event of a worker's retirement, death or disability. It
has allowed the great majority of Americans to retire with the dignity
that comes from financial independence, without fear of poverty or
reliance on others.
It is impossible for me to imagine a government program that has had a
more positive impact on the lives of older women than Social Security.
There can be no doubt -- Social Security is a vitally important element in
the retirement income security of our sisters, our mothers, our
grandmothers, and our great grandmothers.
Let me share some facts with you. In December 1997, there were 19
million women aged 65 and older receiving Social Security benefits,
compared to 13 million men aged 65 and older. More than one-third of these
women are protected on the basis of their own earnings in Social Security
covered employment; monthly benefits average $650 for these women.
Under the Social Security dual entitlement provision, if a retired
worker is eligible for higher benefits as a spouse or surviving spouse,
then that higher amount is paid. Another third of these aged women were
dually entitled to higher benefits as a spouse or widow. Not surprisingly,
the average benefit paid to this group is higher - approximately $700 a
month. That leaves the remaining third receiving benefits only on the
basis of another worker's earnings as spouses or widows. Spouses receive,
on average, $400 a month; widows, on average, $730 a month.
Average Monthly Benefits for Women, 1997
Source: Social Security Bulletin, Annual Statistical Supplement, 1998,
Table 5.A15.
But these numbers tell only part of the story; they don't tell us how
important Social Security benefits are, particularly for nonmarried aged
women beneficiaries. This group includes divorced women, widowed women,
and women who never married. The facts are astonishing:
Social Security is the major source of income (50 percent or more) for
three-quarters of nonmarried aged women beneficiaries.
Social Security contributes 90 percent of income for two-fifths of
nonmarried aged women
Social Security is the only source of income for 25 percent of
nonmarried aged women.
And we also want to keep in mind that when aged women come on the
Social Security rolls, they tend to stay with us longer than men do. Women
reaching age 65 this year are expected to live an average additional 19
years, compared to 16 years for men.
Provision of Dependent's and Survivor's Benefits
The provision of Social Security dependent's and survivor's benefits is
particularly important for women.
In 1939, in order to improve benefit adequacy, Congress enacted
legislation that provided wife's benefits equal to one-half of the
worker's benefit and widow's benefits equal to three-fourths of the
worker's benefit.
A spouse's benefit is offset dollar-for-dollar against that person's
own worker's benefit. The rationale for this provision is based on the
idea that women who are eligible for benefits based on their own earnings
cannot be considered completely dependent on their husband's earnings for
support, and therefore should not receive a full wife's benefit in
addition to their own worker's benefit. The same rationale applies to
surviving spouse's benefits.
Since 1939, benefits have been added for disabled widows, divorced
wives and surviving divorced wives.
Improvements in the Program
In the last 30 years, total income has risen by about 95 percent, after
adjusting for inflation, for elderly women. Social Security has played a
prominent role in the income increases of older women over the past three
decades.
Much of this is due to legislation enacted by Congress to improve
protection for certain dependents and survivors. For example, there have
been significant changes in widow(er)'s benefits:
In 1961, the widow's rate was raised from 75 percent of the worker's
benefit to 82 1/2 percent.
In 1968, benefits for disabled widows were added to improve
protection for this vulnerable group.
In 1972, Congress raised the widow's full benefit rate to 100 percent
of the worker's benefit.
Benefits for disabled widows were raised in 1983 from as little as 50
percent of the worker's benefit level to 71.5 percent.
Protection for divorced women has been added and then expanded, as
well:
Divorced wives and widows first became eligible for benefits in
1965, but there was a dependency requirement and a 20-year length of
marriage requirement.
In 1972, the dependency requirements for divorced women were removed.
In 1977, the length of marriage requirement was reduced from 20 years
to 10.
Beginning in 1985, divorced spouses could become "independently
entitled" to benefits. That is, they could receive benefits based on the
earnings of an eligible former spouse even if the former spouse had not
applied for benefits or had benefits withheld under the annual earnings
test.
Today, divorced women aged 65 or older--who at one time received no
Social Security recognition for their years of marriage--receive an
average of $400 per month as divorced spouses and $750 as divorced
surviving spouses. At a time when one of every two marriages ends in
divorce, this protection gains added importance.
And the importance of the automatic cost-of-living adjustments, enacted
in 1972, cannot be overlooked when we think about improvements in
retirement income security for elderly women. Women's greater life
expectancy makes benefit indexing especially important. For example,
without indexing, a $100.00 payment that began in 1975 would have declined
in value and, 20 years later, would have the same purchasing power as
$33.00 in 1975.
Progressive Benefit Formula
I'd also like to take just a minute to discuss the weighting in the
Social Security benefit formula. Social Security benefits have been
"tilted," if you will, in favor of low earners, since the 1935 Act. The
weighting is part of the redistributive nature of the program.
This feature is very important to women, for two reasons. The first has
to do with women's paid work patterns. Women, on average, earn less than
men. The median earnings of full-time, full-year working women in 1997 was
$25,000 compared to $34,000 for men- or approximately 75 percent. Women
have historically earned less than men; the gap is narrowing, and we
expect it to continue to narrow- but let me be truthful, the gap it is not
expected to disappear entirely.
Women's Earnings Have Increased But Remain Lower than Men's in
1997
*1997 dollars Source: U.S. Census Bureau, Historical Income Tables -
Persons, Table P31.
Also, women have different labor force participation rates than men.
The labor force participation rate for people age 25-64 was 72 percent for
women compared to 88 percent for men in 1996. More recent cohorts of women
have entered the workforce at younger age than in the past and have
maintained a consistently higher participation rate. However, women are
not expected to reach the same level of participation as men.
So women tend to have shorter careers, and earn less when they do work,
than men. And that means that, when it comes time to compute their Social
Security retirement or disability benefits, a larger portion of their
total average earnings winds up in the bottom, or 90% bracket, of the
benefit formula. Therefore, on average, replacement rates (benefits as a
percentage of preretirement earnings) are higher for women workers who are
more likely to have lower earnings than men. As the chart below shows,
workers who had steady low earnings1 have more of their pre-retirement
income replaced than workers with high earnings.
Greater Income Replacement for Low Wage Workers
Source: 1999 Annual Report of the Board of Trustees of the Federal
Old-Age and Survivors Insurance and Disability Insurance Trust Funds,
Table III.B5
Relationship between Social Security and Poverty
We can be proud of the fact that more than 40 percent of the aged are
kept out of poverty by their Social Security benefits. With Social
Security, only about 9 percent of beneficiaries are poor. Without Social
Security, half of all beneficiary families would be poor. Here in the
great State of Arkansas, it is estimated (by the Center on Budget and
Policy Priorities) that 79,000 elderly women are lifted from poverty by
their Social Security benefits.
Poverty Rates of Elderly Women are Much Lower in 1997 with Social
Security
Source: Center on Budget and Policy Priorities, 1999
Even though Social Security does a good job of keeping most elderly
families above the poverty threshold, poverty rates vary greatly between
different groups. For example, poverty rates are higher among nonmarried
women than married women beneficiaries.
Only 5 percent of aged married women are poor; in contrast, 22
percent of divorced, 20 percent of never-married, and 18 percent of
widowed women age 65 and older are poor.
Widows account for the largest proportion (68 percent) of poor aged
beneficiary women. There are 1.4 million aged widows who receive Social
Security benefits and have family incomes below the poverty line.
We realize that income security remains an elusive goal for many
elderly women. We are constantly striving to improve our programs in order
to better serve those who depend on them.
Pensions and Assets
Even though Social Security benefits are at historically high levels,
women often lack other sources of income that they need to supplement
their benefits. Asset income is the most prevalent supplement to Social
Security benefits for the aged as a whole, but aged women are less likely
to have such income at all. In 1996, 76 percent of married couples aged 65
or older had asset income compared to 55 percent for nonmarried women and
men. In addition, the value of this asset income for women is less than
that for married couples or nonmarried men. The median income from assets
was $2,663 for these married couples, compared to only $1,146 for
nonmarried women and $1,202 for nonmarried men.
Pensions are also an important supplement to Social Security benefits.
And there is good news and bad news. On the one hand, women's coverage
rate has increased substantially; on the other hand, the coverage rate
among men has suffered a slight decline. For full-time private sector
employees, in 1972, women had only a 38 percent coverage rate; by 1993,
their coverage had increased to 48 percent. During this same period, the
coverage rate for men decreased from 54 to 51 percent.
The increase in women's pension coverage has coincided with further
increases in women's labor force participation rate. Thus, not only are
more women working, more working women are securing their own pension
protection.
While we are seeing improvements in pension coverage, aged women today
are less likely to receive a pension in addition to Social Security. In
1996, 54 percent of married couples aged 65 or older had pension incomes
compared to 30 percent for nonmarried women and 41 percent of nonmarried
men.
Furthermore, pensions (and assets) are an insigificant source of income
among lower-income elderly. Although pensions provide about one-fifth of
all income among the aged, the great bulk of that money goes to
higher-income couples and individuals. According to one recent study, 84
percent of all pension income among the aged goes to those in the top
two-fifths of the income distribution; only 4 percent goes to those in the
bottom two-fifths.
President's Framework
Before I close today I'd like to talk just a little about Social
Security solvency. As you know, the program faces a long-range deficit of
2.07 percent of taxable payroll under the intermediate assumptions of the
1999 Trustees Report. Ensuring the long-range solvency of the Social
Security program must be our number one priority as advocates for
improving retirement income adequacy for elderly women. We have seen today
that Social Security is fundamental to the economic well being of our aged
population. That is why the President's framework to preserve and
strengthen Social Security is so very important. The President has
proposed three distinct actions to address the long-range Social Security
deficit:
First, the President's framework provides for transferring amounts
equal to 62 percent of projected federal budget surpluses over the next
15 years-about $2.8 trillion-to the Social Security system, and using
the money to pay down publicly-held debt.
Second, part of the transferred amount, but never more than 15
percent of the trust funds, would be invested in the private sector to
achieve higher returns.
Third, the framework calls for a bipartisan effort to take further
action to ensure the system's solvency until at least 2075.
The President's first two proposals would resolve more than half of the
long-range funding problem and would extend program solvency through 2059.
USA Accounts
The President also has proposed a system of Universal Saving Accounts,
which we call "USA's," outside of the traditional benefit structure, that
would strengthen the savings and pension legs of our retirement programs.
The USA tax credit would be a progressive, voluntary retirement savings
incentive that targets the largest incentives to lower and moderate income
working families, who often find it hardest to save. Lower and
moderate-income participants would receive an automatic government
contribution, in the form of a refundable credit, deposited directly into
their USA accounts to help them begin saving for retirement. Participants
would receive a government match on their voluntary USA contributions (or
401 (k) contributions), with the largest amounts going to lower and
moderate-income participants.
Given this progressive structure, women would tend to benefit more than
they would in an account system based on a fixed percentage of earnings.
In addition, the USA accounts would not divert funds from the existing
Social Security program, a program of guaranteed benefits which protect
women's retirement security. Conclusion
The President is committed to helping elderly widows who typically have
higher poverty rates than other elderly. Again, using Arkansas as an
example, 48,000 elderly women are poor, despite their Social Security
benefits. In his State of the Union address, the President made it clear
that he wanted to address their situation as part of the effort to close
the long-range deficit in Social Security.
As President Clinton has said, now is the time for action on retirement
issues. If we take action now, when there is no crisis, when we enjoy the
first budget surplus in a generation, we can prevent a crisis from ever
occurring. If we delay action for a generation, the size of the financing
problem would double. We now have an historic window of opportunity to
meet the challenge we face today...and we can't let this opportunity slip
away.
Again, I applaud the Subcommittee for raising public awareness of this
issue. For its part, the Social Security Administration will be studying
many of the questions being raised today, and we will keep the public
apprised of our findings. Thank you.
1 Low earnings are equal to 45 percent of average ($12,342),
average earnings are equal to the national average wage ($27,426), and
high earnings are equal to 160 percent of the average earnings ($43,882).
Top of Page
|