Testimony of Jane L. Ross, Deputy Commissioner for Policy,
Social Security Administration
before the Senate Special Committee on Aging
Little Rock, Arkansas
June 1, 1999


Today 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
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
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
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
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).