Hard Work Doesn't Always Pay Off
By Judy Mann
One of the Social Security system's dirty little secrets is that the current generation of working married women -- who are establishing long-term careers and are paying 6.2 percent of their paychecks into the trust fund -- are in effect subsidizing the system.
A married woman's retirement benefit is either half of her husband's benefit or her own earned benefit, whichever is higher. If a married woman's benefit is higher than her husband's, she continues to get that amount if he dies. But a married woman who qualifies for survivor or spousal benefits based on her husband's earnings gets nothing for the taxes she has paid into the system. Her benefits as a spouse or widow will not be any higher than if she had never worked at all.
The Social Security system was set up when the typical household consisted of a male breadwinner who paid into the fund and a female homemaker who did not. And it has not been reformed to reflect the fact that millions of women are now employed and paying Social Security taxes on substantial incomes.
Here's how the survivor's benefit shortchanges women -- who live longer than men and thus are more likely to be affected by the benefit. Assume that each partner in a married couple receives $1,000 a month. The husband dies. The wife would then get a $1,000-a-month survivor's benefit, "getting nothing in addition despite the fact that she has worked and contributed to get her $1,000 a month," Fierst says. "She has the right to dependent benefits for her, but as far as other retirement benefits, she gets nothing back."
Here's how the spousal benefit fails to acknowledge the working wife's contributions to the trust fund. Take the case of a married couple who retire. The wife is entitled to the larger of the benefit she earned or at least half of the benefit the husband is receiving if that is larger. Thus, if the husband retires and his benefit is $1,000 a month, the retired wife who worked and who was eligible for $500 in benefits could receive $500 a month, exactly the same amount as a woman who had never paid a cent into the Social Security trust fund.
"They've paid tax on all that money and aren't any better off as a result," says Fierst.
"More and more women are earning over half of what their husbands earned and that's expected to grow," she said. "But it is not expected that she will earn as much as he did."
Even for women retiring in 2015, only 20 percent of them will have earned benefits greater than their husbands. This means that for most women their workers' benefits will continue to be smaller than the benefits they will receive as widows.
"They still need a survivor's benefit," Fierst says, "but they should have a benefit that is larger than if they had never worked. If you are a nonworking wife, you would get the same benefit that your husband earned. If you worked and contributed, you would not get any more as a survivor than if you had never worked."
This is patently unfair to women who have worked long and hard and paid for decades into the Social Security system, expecting to see some of that money return to them in their retirement.
One solution to this, Fierst says, would be to increase the survivor's benefit to three-quarters of the combined benefit that the husband and wife were receiving. This solution, which Fierst and seven other members of the 13-member advisory council supported, would mean that, if the husband and wife each had benefits of $1,000, the survivor benefit would rise from $1,000 to $1,500. The nonworking spouse would continue to receive $1,000.
"This is a good idea for two reasons," Fierst says. "One is that it increases the equity so women who worked and paid the tax don't feel they pay the tax for nothing. There is a lot of discontent, and there will be more, as more and more people realize under current law they have paid this tax for practically nothing.
"It will also increase the benefits of widows who are currently among the poorest people in America. Twenty percent of the elderly women living alone, who are single, widows and divorcees, are now below the poverty line." Widows who had worked would be entitled the three-quarters of the couple's combined benefits.
"One way to pay in part for this is to reduce the spouse benefit from one-half to a third," Fierst says. The spouse benefit is payable only when the wife's earned benefit is less than half of her husband's. There are "two reasons why I think this is acceptable, although many would disagree. One is that many of the women who don't work are fairly affluent. . . . There is practically no poverty among married, retired couples.
"The other reason is that most women will be earning more than half of their husband's benefits. Since Social Security is computed on a progressive formula, in order to earn half the benefit you don't have to have had half the income. So the result is most women, even those who earn less than half their husband's salary, will nevertheless get half his benefit from their own earnings." Thus, a cut in the spousal benefit would not affect them adversely.
People's eyes glaze over when they try to read about the Social Security system. Now that Social Security reform is on the radar screen, working women should make an effort to learn about how they are being shortchanged and then contact their representatives in Congress to make sure that reforms reflect their contributions, and the 6.2 percent their employers contribute on their behalf, into the trust fund. We've all had a shock to the economic system these past two weeks that ought to force us to pay attention to something as critical to our retirement welfare as Social Security.
© Copyright 1998 The Washington Post Company