Your Financial Future:
Women & Pensions: An Overview
- Teresa Heinz, Chairman, Heinz Family Philanthropies
- Jeffrey Lewis, Executive Director, Heinz Family Foundation
- Cindy Hounsell, Executive Director, WISER
- Women's Institute for a Secure Retirement
Policy experts use the analogy of a three-legged stool to illustrate the three components needed for adequate retirement income: a Social Security retired-worker benefit, an employer sponsored pension and individual savings. Although none of these sources of income is assured, each is an essential element for replacing pre-retirement income, and each piece is integral to the success of the whole.
Analysts currently estimate that male employees must plan to replace at least 60 to 80 percent of pre-retirement income to maintain their lifestyles after retirement. And, since women live longer than men, they will need even more retirement income than men do. Because only a small percentage of older women receive pension income and most do not have significant personal savings, many women must rely on Social Security as their primary source of income. Two-thirds of women over 65 have no pension other than Social Security.
The problem is that Social Security was meant to provide only a bare minimum of a "floor of protection" in 1996, the average Social Security benefit for retired female workers was $7452 a year, ($621 per month) – $143 above the official poverty level of older adults and almost $1,400 less than a minimum-wage income. The fact that so many elderly women rely on Social Security as their only source of income is one of the major reasons why so many elderly women are poor.
Private pensions --the second leg of the retirement stool can provide an important source of income to women. However, only 13 percent of women age 65 and over are currently receiving a pension, and among that small group the median annual pension income in 1994 was only $3,000. Although access to pensions for women working full-time has increased over the last 20 years to 48 % in 1993 from 33% in 1972, men are still more likely to actually receive pensions because industries and jobs with traditional pensions continue to be dominated by males.
The third leg of the stool--voluntary savings-- is increasingly being emphasized as a major source of retirement income. However, statistics indicate that voluntary savings are not adequate to supplement Social Security. The median income from assets is only $860 a year for women age 65 and over.
Contrary to the almost universal perception that the elderly as a group are doing better than any other group overall, pockets of severe poverty still exist. Elderly women in particular continue to experience poverty rates well above not just those for the elderly but those for the population as a whole.
Older women are twice as likely as elderly men to be living near or below the federal poverty threshold. The incidence of female poverty increases with age: while almost 21 percent of women ages 65 to 74 lived below the poverty level in 1992, the poverty rate for all women ages 75 and older was 24 percent. The poverty rate for women of color is even greater than for white women at each age: for black women, the poverty rate for women ages 75 and older was 43 percent and for women of Hispanic origin, it was 35 percent.
PENSION POLICIES AND WORK PATTERNS OF WOMEN
There are many well-documented reasons why poverty disproportionately affects older women: they are more likely to be widowed (3 of every 5 elderly women face retirement without a husband); their Social Security benefits are significantly lower; their savings are less; and they live longer. A less known, but equally important, reason for the impoverishment of older women is their lack of adequate pension income.
The most significant factor in pension inequity for working women is their employment patterns. They are concentrated in low-wage, service, part-time, non-union, and small-firm jobs where pension coverage is less common. They change jobs frequently and they earn less than men. This makes it difficult for them to meet the requirements for pension benefits and often results in their receiving smaller benefits than men.
The Effects of Work Force Patterns:
Women are more likely to work part-time. In 1993, 10.7 million worked part-time, more than twice as many as men (5.2 million). Among workers employed by firms that maintain pension plans but who are not included in or covered by the pension plan, 28 percent of women are not included because they work part-time; only 19 percent of men are not covered because of part-time work.
- Most pension plans require 5 years to earn a right to a benefit. Despite gains in job tenure, the median length-of-stay at a job for women is still significantly less than that for men: 3.8 years versus 5.1 years
- The jobs that are least likely to provide pension benefits are predominantly occupied by women. Women hold three-fifths of all service jobs. They are 96 percent of all child care workers, 97 percent of receptionists, and 99 percent of secretaries. While representing less than half of the paid workforce, women comprise almost two-thirds of those working for the minimum wage.
The Effects of Women’s Work Force Patterns at Retirement:
- Women are less likely than men to earn pension benefits. Only 32 percent of retired women who worked in the private sector had pension benefits in 1994, whereas well over half of men received them.
- Even when women do earn pensions, their benefits tend to be only a fraction of what men receive because of their lower earnings and complicated pension formulas that penalize them for moving in and out of the workforce. In 1994, half of all women getting a private pension received less than $3,000 a year. The median pension benefit for men was over two-and-a half times as much ($7,800 a year).
Private pensions replaced only 13 percent of a woman's final pre-retirement wage in 1994, compared to 18 percent for men.
- Only 24 percent of female retirees 65 and older are covered under a health plan provided by their former employers, compared to 43 percent of men.
The Effects of Caregiving
Caregiving responsibilities continue to fall disproportionately on women. As a result, a significant gender gap in labor force participation rates still exists in spite of the dramatic increases in the number of working women. In 1992, for women ages 35-44, the labor force participation rate was 77 percent, compared to 96 percent for men. Furthermore, the average woman spends 11.5 years out of the workforce and over 50% of wage earning women have reported dropping out of the labor force for family reasons as compared to 1% of wage earning men. This absence from the paid workforce eventually translates into inadequate retirement income and an increased financial dependency on their spouses at retirement.
Marital status is a primary determinant of the amount of pension benefits and income that an older woman receives. While a 1995 Census Bureau study recommended marriage as an important alternative for all women as a way to avoid future poverty, unfortunately, being married is no guarantee that a woman will have sufficient income in retirement. Married women often count on their husband's retirement benefits to support them in old age, but women tend to outlive their husbands (and their husband's retirement income). The result is an alarming disparity between married women and older women living alone: the poverty rate for elderly women living alone is five times that for married older women.
Over the last decade, reform of the Federal pension law, particularly the Retirement Equity Act of 1984 (REA) has greatly improved the chances that a widow will continue receiving pension payments. The REA requires private pension plans to pay survivor benefits unless a spouse waives this protection in writing.
However, problems still arise because the "spousal consent" forms that are used to waive the benefit are confusing. Without sufficient information to make an informed decision, many couples choose the larger benefit instead of the survivor benefit without understanding that, as a result, a wife will not receive any benefit after her husband's death. Still others do not understand that even when they elect the survivor benefit, the widow will probably receive only half of the amount received while her spouse was alive.
The Effects of Widowhood
One-third of women who become widowed are younger than 60. Half of all women who become widowed are younger than 63.
Widowhood can severely jeopardize a woman's economic prospects. Elderly widows receive, on average, only $5,964 a year in Social Security benefits as compared to an average of $14,580 for the joint Social Security benefit received by a married couple.
Only 21 percent of widows receive survivor pensions based on their husbands’ benefits.
Of those who do get a, benefit, half receive less than $4,800 per year.
Although the pension laws are gender-neutral, inequities in the workplace and in family caregiving roles mean that women continue to be less likely to be covered by pension plans and to receive benefits. As long as we allow these inequities to persist, the retirement profile for future generations of women will remain bleak.