The Impact of Social Security Reform on Low-Income and Older Women

Sara E. Rix Project Manager The Public Policy Institute, formed in 1985, is part of Policy and Strategy at AARP. One of the missions of the Institute is to foster research and analysis on public policy issues of importance to older Americans. This paper represents part of that effort. The views expressed herein are for information, debate and discussion, and do not necessarily represent formal policies of AARP. Nor should they be attributed to the Urban Institute, its board, or its sponsors.  2002, AARP Reprinting with permission only. AARP, 601 E Street, N.W., Washington, DC 20049 www.aarp.org/ppi2002-11 July 2002 THE IMPACT OF SOCIAL SECURITY REFORM ON LOW-INCOME AND OLDER WOMEN by Melissa M. Favreault and Frank J. Sammartino The Urban Institute ii THIS PAGE INTENTIONALLY LEFT BLANK. iii Acknowledgments The authors gratefully acknowledge four members of the DYNASIM team, Jillian Berk, Paul Johnson, Douglas Murray, and Karen Smith, who provided extensive programming assistance. We also thank Sheila Zedlewski, three anonymous reviewers, and the internal review team at AARP for useful comments. iv THIS PAGE INTENTIONALLY LEFT BLANK. v Foreword Despite women’s increased labor force attachment, rising earnings, and expanded pension coverage, Social Security is the mainstay of retirement income for older women, 90 percent of whom receive benefits from the program. Widowed, divorced, and never-married women are especially dependent on Social Security, which accounts for at least half of the income of nearly three-fourths of nonmarried women aged 65 and older. It is the only source of income for about one-fourth of them. Though the program is gender neutral, many of Social Security’s provisions are particularly beneficial to women. Women are, for example, disproportionately represented among low-wage workers. Social Security’s benefit calculation formula replaces a higher proportion of the earnings of low-wage workers than of higher-wage workers. Women’s longer life expectancy is not taken into consideration when benefits are calculated, so men and women with identical work histories and earnings receive identical benefits. In addition, women’s lower life-time earnings and discontinuous work histories mean that their spouse and/or survivor benefits are often higher than their own retired worker benefits. They receive the larger of the two benefits. A divorced women who had been married for at least 10 years also qualifies for benefits based on the earnings record of her former husband. Over the years, the Social Security Act has been amended numerous times in ways that further enhance the financial well-being of women, in particular. The duration of marriage requirement, for example, has been shortened from 20 to 10 years. A divorced spouse who has reached retirement age can begin drawing Social Security benefits on the earnings record of a former spouse, even if the former spouse has not retired. Women who remarry after the age of 60 now have the right to collect Social Security based on their current or former husband’s record, whichever produces higher benefits. Yet, despite all the ways in which women benefit from Social Security, millions of older women have incomes near or below the poverty level. In the research reported on in this study, Melissa Favreault and Frank Sammartino of the Urban Institute examine the impact on low-income and older women of a number of additional reforms to Social Security, several of which, in one version or another, have been proposed in recent years. Increasing survivor benefits, for example, has long had its proponents, under the assumption that doing this could reduce substantially the number of women who fall into poverty upon widowhood. Using DYNASIM3, a dynamic microsimulation model, Favreault and Sammartino compare distributions of Social Security benefits under current law and under eight reform options that would increase benefits and under three options that would “pay” for some benefit improvements by combining benefit increases with benefit cuts. The analyses reveal widely varying and sometimes unanticipated impacts of the various reforms and should serve as a warning that, as the investigators observe, “using intuition alone to guide reform efforts can be dangerous.” Sara E. Rix, Ph.D. Senior Policy Adv