Oral Testimony of Kenneth Apfel Commissioner of Social Security
Hearing before The Senate Democratic Task Force on Social Security
September 13, 1999
Good afternoon, Mr. Chairman and Members of the Task Force. Thank you for inviting me to discuss Social Security's role in the economic status of older women and proposals to eliminate the retirement earnings test or RET. I would like to commend the Chairman and the members of the Task Force for the important work you have done to further the National discussion on Social Security reform and solvency.
The program's solvency is particularly essential in improving retirement income adequacy for elderly women. Most importantly, I am convinced that the President's framework for reform will lead to solvency.
As you know, the President's framework provides the following keys to Social Security solvency:
- locking away the entire Social Security surplus each and every year;
- transferring interest savings on the federal debt to Social Security;
- investing no more than a maximum of 15 percent of the transferred amounts in the private sector to achieve higher returns for Social Security.
We have an historic window of opportunity to meet the challenge facing Social Security - and we must act now to guarantee that the most important social welfare program of the 20th century is preserved and strengthened for the 21st century.
The President is also proposing Universal Savings Accounts or "USA's," a progressive, voluntary retirement savings plan to supplement Social Security and other retirement income. Lower and moderate-income participants - who find it most difficult to save -- would receive automatic contribution credits deposited directly into their USA accounts to help them get started saving for retirement. This would be particularly advantageous for women, who often don't have pensions or savings to augment Social Security benefits.
In fact, as far as older women, it is impossible for me to imagine a government program with a greater positive impact. These are not faceless people, but our sisters, our mothers, our grandmothers and our great grandmothers. Their retirement security often depends on Social Security.
While more than 40 percent of all older Americans are kept out of poverty because of Social Security, I agree with the President that when even one older American faces poverty, we cannot rest easy. His statement, "We should reduce poverty among elderly women who are nearly twice as likely to be poor as our other seniors," goes to the heart of the matter before us today. We must make sure that when we look at Social Security reform and poverty, we do better for female senior citizens not worse.
As you'll remember, SSA has done an analysis showing the distributional effects of various Social Security solvency options by gender and income. We are continuing to work further in this area.
In December 1998:
- 19 million women aged 65 and older received benefits compared to 13 million men 65 and older;
- 36 percent of these women are protected on the basis of their own earnings in Social Security covered employment;
- 28 percent of aged women beneficiaries are dually entitled to higher benefits as a spouse or widow;
- 6.8 million aged women receive benefits only on the basis of another worker's earnings; and
- almost three-quarters of Social Security beneficiaries aged 85 and older are women because, on the average, women live longer than men do.
But these benefits only tell part of the story. For nonmarried aged women beneficiaries, which includes divorced women, widowed women and women who never married, the facts are astonishing.
For them, Social Security:
- is the major source of income for 76 percent;
- contributes 90 percent of income for about 41 percent; and
- is the only source of income for 25 percent.
Other important aspects of Social Security that help older women are the automatic cost-of-living adjustments and the progressive benefit formula. The latter is particularly germane since women on average earn less than men, due to wage differentials and shorter careers.
I also agree with the President that we should not drain resources from Social Security in the name of saving it. In particular, some of the carve-out proposals would lead to a loss of the progressive nature of the Social Security benefit formula.
Also, while the current program provides inflation-protected benefits for life, individual accounts may not have this same guarantee, plus women could end up with smaller accounts because of their lower earnings and tendency to invest more conservatively. And finally, individual accounts would not provide supplemental protection for dependents.
Now I will discuss the Retirement Earning Test which has been part of the Social Security System since the beginning. Eliminating the RET would give older Americans greater freedom to work while receiving their Social Security benefits - which are meant to be supplemented by pensions, savings and other forms of income.
On balance, the positive effects of eliminating the RET above the full benefit retirement age outweigh the potential negative ones. The choice is less clear regarding elimination of the RET below the NRA. The decision to retire early, while based on short-term needs or considerations, would have the long-term effect of reducing these individuals' monthly Social Security benefits.
It should be noted that the survivors of workers who retire before full benefit retirement age also get permanently reduced benefits due to the worker's decision to retire early.
The Administration and Congress have worked together successfully to create a prosperous economy for our country - a situation we might not have predicted only a few short years ago. I believe the next step is to strengthen and protect the Social Security system for future generations of Americans.
I will be happy to answer any questions you may have.