Social Security and motherhood Archives

Originally published at Forbes.com on March 16, 2018.

Let me tell you about my mom.

Back in the days when one could earn the R.N. certification via apprenticeship-like training, she did exactly that, because her old-world father was willing to sign off on only a small number of occupations for his daughters. She worked up until shortly after my older sister was born, then quit her job and became a stay-at-home mom when she tired of the long commute to drop off my sister at my grandmother’s before starting her shift. Money was tight, to be sure — we kids wore hand-me-downs — and she went back to work when my younger brother started school, but never again returned to hospital nursing, instead working at an orthodontist’s office, a market research company, and various other jobs, mostly part-time and with various spells of nonworking, ending up with a long stretch at a department store before she finally retired.

Now, due to Dad’s income during their working lifetime, and his pension and their joint savings now (Dad: “yes, I know, all your friends are going to Disney, but we save our money instead”), their finances are healthy now in retirement. But her Social Security benefit is still, not surprisingly, considerably smaller than dad’s, bolstered as it was by his full career of full-time middle-management employment.

Is it “fair” that her benefit is small? Heck, is it “fair” that she, like many women, stayed at home with children, and has lower lifetime earnings as a result? For reference, in 2015, the average annual Social Security retirement benefit for women was $14,184, compared to $18,000 for men.

What elements of the Social Security benefit formula, if any, should make the situation more “fair”? In my last column, I wrote that the top-up to 50% of the primary earner’s benefit was a crude way of approximating a benefit for women who, as caregivers, had an insufficient earnings history of their own. But implicit in my characterization is the idea that it’s not the best approach, though it does start to grow on you if you consider a woman’s husband’s income as a proxy for what she might have earned had she not left the workforce. Here are some alternatives.

Option 1: Remove the benefit top-up entirely. After all, one can presume that in the case of a married couple making the decision that one of them would stay at home to care for children, they made this decision because they had a healthy standard of living even with one income, and, in that case, why should they need a top-up now? And strictly speaking, it’s a subsidy from the rest of us to women who chose to stay at home or work part-time. If, as a result of the “grey divorce” phenomenon, these women have trouble making ends meet, then the Social Security benefits their husbands have earned can be considered in the overall divorce agreement alongside workplace pensions, IRAs, and other assets and income.

Option 2: Replace the top-up with income-splitting. Instead of giving women with poor earnings history a top-up based on their husband’s benefit, just total up the earnings of a married couple, in any given year, and allocate half to each spouse’s earnings history. This means that, assuming both were earning similar amounts prior to marriage, they’ll end up with similar Social Security benefits at retirement, and eliminates the reduced benefits that women have, to the extent that they’re the result of staying at home with children while their husbands work. This eliminates any unfair cross-subsidy because no one’s getting any benefits they didn’t earn.

As it happens, back in 2009, the Social Security Administration put out a report modelling variations of this alternative. They found that

13% of individuals would see no impact on their benefit,
29% of individuals would see an increase, of, on average, 8%, and
58% of individuals would see a decrease of, on average, 11%,

for a net impact of a 4% overall reduction in average benefits, which, depending on one’s perspective, is either a win for solvency and fairness for the childless, or a penalty and a take-away. Which is probably why despite prior discussion of this possible change, according to the report, this proposal never saw public airing.

Option 3: Provide child-rearing credits. This is the approach that many European systems take, though the exact implementation varies. For example, in Germany:

For births since 1992, a parent providing care to a child aged 0 to 3 receives 1 earnings point each year. For parents with at least 25 years of paid or credited contributions who continue to work part time while providing care to a child aged 0 to 10, the value of contributions paid is increased to 1.5 times the value, up to the value of contributions for average earnings of all insured persons; nonworking parents providing care to at least two children aged 10 or younger receive 0.33 earnings points a year.

In Austria:

As from 01/01/2005 mothers may acquire contributory years under their pension insurance for times spent raising children, too, not only for times of gainful employment. Fathers will have such years credited as contributory years if they are able to substantiate that they primarily took care of the child/ren, e.g. as a lone parent or male homemaker living with a working mother. The maximum credit per child is four contributory years from the pension insurance (five years in case of a multiple birth). Pension contributions for periods spent raising children are calculated on the basis of a monthly assessment basis of 1.649,84 € for the year 2014.

In Switzerland, provision for stay-at-home moms comes in the form of

Bonuses for raising children or providing care: an increase in income taken into consideration to calculate the pension for parents with children aged less than 16 years and for those looking after close relatives needing care.

Variations in benefit design tend to center around whether one must be out of the workforce to get these benefits, or simply be credited due to having a child.

Canada probably provides the best model for what a such a system could look like in the United States. Since Social Security is based on the 35 years with the highest wage-increase-indexed wages, the most straightforward way to provide a benefit top-up to people with low average earnings due to childrearing would be to reduce the number of years in the averaging period, so that these years which would otherwise be zeros or very low due to part-time wages, wouldn’t be a part of the average calculation. To be sure, this wouldn’t make mothers whole, in taking into account lost earnings growth due to lost promotional increases, but it’s probably about as good as can be managed.

For further reading, the Social Security Administration produced a report in 2011 with extensive detail on potential caregiver credit designs and international comparisons.

Option 4: Yes, you guessed it, my own retirement system proposal, which really deserves a better name than the “purpose-based plan,” as well as similar plans in existence elsewhere in the world, which provide benefits purely based on having lived up until retirement age, regardless of how much or how little one has worked, or for what reasons, with or without means-testing for higher-earners. Yes, we’d have a host of other arguments then, including the question of whether the government has an obligation to do anything, as a matter of policy, about lower lifetime earnings feeding into a lower “second-tier” benefit, but at least the baseline benefit would be the same for everyone.

What’s fair? What’s unfair? It depends on whether one’s objective is to even out benefits between spouses or ex-spouses, or whether one’s initial premise is that the state should in some way reward, or offset the costs of, parenting. After all, however appealing caregiver credits might be, as a “nice thing” for the government to do, the end result is still the provision of benefits not just to the needy but to perfectly middle-class families, in the same way as various parental leave proposals would do.

And this is all connected up as well with concerns about women’s retirement assets and income, which is a subject for another day.

December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.

Originally published at Forbes.com on March 13, 2018.

“Why does [name of sibling] get to [do or have desired activity or thing] and I don’t? It’s not fair.”

“Oh, yeah. Well, life’s not fair.”

How many times have you been on one end or another of this parent/child conversation? I still can picture in my mind the time that my one-year-older-than-me sister was allowed to stay up late to play Monopoly with my parents and I couldn’t.

As it happens, a writer at the Washington Post made this discovery about Social Security: it’s full of benefits that benefit the wrong people and shortchange others, a litany of items that call to mind my first-grade self standing there in my nightgown saying, “it’s not fair.” (Did I really do this? I have no idea.)

The article in question, “How late-in-life dads — like Trump — are eligible for a Social Security bonus,” by Allan Sloan and C. Eugene Steuerle, starts with a complaint about what it calls the “Late-in-Life-Baby Bonus” which gives supplemental benefits to parents of minor children. As Sloan and Steuerle see it, it is particularly unfair because, on the one hand, parents who have not yet reached retirement age aren’t eligible to collect these benefits (unless, though the authors don’t mention it, because they’re widowed/widowered or disabled), and, at the same time, retirees who have children for shameful reasons (e.g., President Trump being a parent late in life because he took up with a younger trophy wife) and who don’t need the money (again, Trump) are eligible.

But it is in the nature of Social Security that there is no means test, and there is no judgment of whether those late-in-life children are due to skeezy May-December relationships or because of unexpected near-menopausal pregnancies or because retirement-age individuals have adopted children, sometimes even grandchildren when their parents are unable to care for them. It’s just taken as a given that household financial needs are greater with a child present so additional benefits are provided.

Also subject to criticism is the so-called “Single Parent Shortchange,” which is another way of observing that the somwhat crude mechanism by which Social Security provides benefits to stay-at-home/low-earning moms, constructed in an era in which those moms were expected to be married to the fathers of their children, is a benefit that isn’t earned by those women and accordingly comes from everyone else’s FICA taxes. They write,

Single parents are among the lowest-income payers of Social Security taxes. Why should they subsidize other folks’ never-working spouses in a way that gives the biggest benefits to the best-off people?

The fact that Social Security accommodates divorce by providing spousal benefits to divorced ex-spouses, in the same manner as if the couple was still married, is subject to criticism as the “Serial Spouse Bonus,” that is, because any given worker, if he had been married multiple times, each for over 10 years, would have multiple ex-wives able to claim spousal benefits if they exceeded benefits under their own earnings records.

And, finally, they take issue with the “Equal Earner Penalty,” which they characterize as

a couple with two people each earning $40,000 gets about $100,000 less in lifetime benefits than a couple with one spouse earning $80,000 and the other earning nothing. This happens even though both couples and their employers pay identical Social Security taxes.

This is, of course, not a surprise — again, spouses’ benefits are a clunky form of social welfare spending built into Social Security. And even comparing two unmarried individuals, the progressive nature of Social Security benefits means that, in a more real-world example than a zero-lifetime-income individual, a person with a low lifetime income gets an “unfair” amount of “extra” benefits due to the 90% first-bendpoint percentage — irrespective of whether that low income was due to having been poor, or having been a stay-at-home mom in a middle-class family.

I’ll remind readers that my preferred benefit is a flat benefit, and all of these are non-issues in such a system, especially if the issue of benefits for mothers is solved by giving accrual credits to individuals who were out of the workforce caring for children, rather than adjusting benefits at retirement, or, alternatively, by not caring at all about employment history in handing out benefits.

But such a system would generate its own cries of unfairness: why should Bill Gates get a benefit if he doesn’t need one? Why should that fat slob who never worked get one?

Ultimately, all these cries of unfairness really highlight the ways that Social Security does dual duty as a social welfare program for the elderly and as a mainstream income-replacement retirement program. People want it both ways — they want to feel they’re “earned” their benefits but at the same time, they want benefits to be progressive, with the needy getting more and the wealthy paying more. And when it comes to proposed updates to the system, we see even more of these two impulses, as pundits and ordinary Joes and Janes alike simultaneously insist that workers have earned every penny of their future benefits by dint of their own hard work and FICA taxpaying, and yet, in order to repair the solvency of the system, that the millionaires and billionaires had better be called upon to pay in their “fair share,” that is, subsidize the system.