Will the pandemic worsen the retirement gap for women?

Women face tougher odds than men achieving a secure retirement - they have lower lifetime earnings throughout their lifetimes and caregiving responsibilities cause them to spend more years out of the job market or to work in part-time positions that don’t come with retirement benefits.

Now, the pandemic could worsen the retirement gender gap. As the chart above from the Schwartz Center for Economic Policy Analysis shows, older workers are experiencing a historically-high rate of joblessness compared with their older counterparts. And The New York Times reports this week that all female workers have absorbed “a rare and ruinous one-two-three punch”:

“First, the parts of the economy that were smacked hardest and earliest by job losses were ones where women dominate — restaurants, retail businesses and health care.

Then a second wave began taking out local and state government jobs, another area where women outnumber men.

The third blow has, for many, been the knockout: the closing of child care centers and the shift to remote schooling. That has saddled working mothers, much more than fathers, with overwhelming household responsibilities.”

The story goes on to note that in October, 4.5 million fewer women were employed than a year ago, compared with 4.1 million men who lost jobs.

And the Schwartz Center reports that:

“Older women also faced higher rates of job loss than older men since the beginning of the pandemic, averaging a 38% higher likelihood of going from employed to unemployed in any given month. While unemployed older women returned to work more slowly than older men in the initial months of the recession, since July they have found work again at higher rates.”

We are still in the early chapters on the labor market story, but I’m worried that for women in their fifties and sixties, these emerging trends could be ruinous. And my most immediate thought is that some very sensible Social Security reforms could soften the blow.

For context, let’s start with a quick review of how Social Security benefits are calculated.

Your Social Security benefit is determined by a formula called the Primary Insurance Amount (PIA). This starts with a calculation of your average indexed monthly earnings (AIME). The Social Security Administration takes into account any years of earnings that you had before you reached age 60. and indexes them up to prevailing earning. (That is done using the average wage indexing series that the SSA computes every year.)

Here’s the key: For a retirement at 62 or older, AIME takes into account your highest 35 years of earnings, averaging them on the aforementioned wage-indexed basis. What happens if you have only 30 years of earnings? Social Security still takes the highest 35, so this will include five years of zero earnings. So, women with less than 35 years of wage history take a hit.

From there, AIME is applied to the PIA formula. This is a bit like an upside down version of our income tax bracket structure. With the PIA formula, AIME is broken into three segments (often referred to as bend points.) You get 90% of AIME for the first segment; for the next segment, you get 32% of AIME. For the third segment, you get 15%.

Reform ideas

Some Social Security reform plans have proposed tweaking the bend points to funnell more income to lower-income workers. But more targeted changes also have been proposed.

For example, we could boost benefits for people who leave the workforce to handle caregiving duties. That could be done by allowing caregivers to exclude some non-working years from the calculation of their benefits; another is to provide a wage credit to caregivers.

Another route: provide a bonus for long-term beneficiaries. President-elect Joe Biden has proposed a boost equal to 5 percent of the average benefit to beneficiaries who had collected payments for 20 years. This would phase in, beginning with a 1 percent boost for beneficiaries who had collected for 16 years.

Another Biden proposal would increase benefits for surviving spouses. When a spouse dies and benefits stop, the surviving spouse can lose as much as half of the household’s retirement income. The current survivor benefit is equal to 100 percent of the deceased spouse’s benefit, but that doesn’t help much in cases where both spouses had similar wage histories and benefits.

Biden’s plan would allow survivors to collect 75 percent of the total benefit received by the household before their deceased spouse died, as long as the new payment does not exceed the benefit received by a two-earner couple with average career earnings.

For more on the Biden plan, see my recent podcast interview with Rich Johnson of The Urban Institute.

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Cancel your Thanksgiving plans, please

Coronavirus infections are spiking to frightening levels, and our overburdened health care system is nearly overwhelmed. The recent vaccine announcements promise light at the end of the tunnel- but the tunnel itself looks very dark. So for now, the best thing we all can do is to stay socially distant to flatten the curve as much as possible.

One of the best and most trustworthy expert writers on the pandemic is Ed Yong of The Atlantic. Please read his most recent dispatch, which concludes with the following:

“But the best strategy remains the obvious one: Keep people from getting infected at all. Once again, the fate of the U.S. health-care system depends on the collective action of its citizens. Once again, the nation must flatten the curve. This need not involve a lockdown. We now know that the coronavirus mostly spreads through the air, and does so easily when people spend prolonged periods together in poorly ventilated areas. People can reduce their risk by wearing masks and avoiding indoor spaces such as restaurants, bars, and gyms, where the possibility of transmission is especially high (no matter how often these places clean their surfaces). Thanksgiving and Christmas gatherings, for which several generations will travel around the country for days of close indoor contact and constant conversation, will be risky too.”

The retirement reboot

I joined my Reuters colleague Lauren Young (top left) for a lively panel discussion earlier this week on retirement saving, health care and Social Security. Also joining us (clockwise from top) were economist Teresa Ghilarduci from the Schwartz Center for Economic Policy Analysis, Kedra Newsom Reeves of the Boston Consulting Group, Christine Benz of Morningstar and Harry Dalessio of Prudential Retirement.

Lauren asked a provocative question: “If you could give just one piece of quick advice to the incoming Biden Administration on how to improve retirement security, what would it be?” You’ll have to listen to hear my answer. The video is here.