Who gets what: Simple, yet so complicated

Author: Richard Wolf

Published: June 7, 2005

The fight over the future of Social Security has a new rallying cry: Help the widows. Widows have come to symbolize a larger group of seniors who are having trouble making ends meet.

Betty Holloway worked most of her life as a teacher, administrator and supervisor of special education in Vermont while raising five children. Now 80 and widowed in Candler, Fla., she gets about $700 a month from Social Security based on her wages, plus a pension. "I'd hate to think I'd have to live on Social Security," she says.

Marcia Malloy was widowed at 55. Now 66, she gets $1,024 in survivor benefits based on her husband's job at U.S. Steel. But she can't survive on that, so she works 12-hour night shifts at Allegheny General Hospital near her West Mifflin, Pa., home. "If I didn't work, I wouldn't make it," she says.

Jennie Alford, 88, made draperies in a factory while her husband worked at a cleaners. Widowed since 1984, she lives in New York City on about $800 a month from Social Security. That's less than some women who never worked get as survivors. "Things are not always fair," Alford says. "You have to make the best of it, that's all."

As President Bush and Congress wrangle over how to keep the retirement system solvent and whether to add individual investment accounts, the issue of who gets what is getting increased scrutiny. That's because 2 million retirees who paid into Social Security throughout their working lives are collecting benefits that aren't enough to keep them out of poverty, according to the House Ways and Means Committee, which has jurisdiction over Social Security.

Lawmakers are considering changes in how benefits are calculated. However, any change is likely to create losers as well as winners, and that makes it politically risky.

"I think it's entirely appropriate to examine the question of who gets what, when and how," says House Ways and Means Chairman Bill Thomas, R-Calif., who is seeking to overhaul the nation's public and private retirement security systems.

Outside experts cite several anomalies in the current benefit structure. Eugene Steuerle, one of the nation's leading authorities in this area and a senior fellow at the non-partisan Urban Institute, has given them nicknames:

The anti-welfare-reform effect. Single heads of households, usually women, often receive less in benefits than non-working spouses get. For example, a single mother who earns about $20,000 a year for 40 years will get lifetime benefits of about $95,000; a non-working spouse married to someone who makes $100,000 a year will get about $250,000.

The anti-working-woman effect. Two-earner households often receive less than those with a single worker. For example, a husband and wife who each earn $15,000 a year will get lifetime benefits of about $177,000. But a couple with one spouse earning $30,000 will get about $273,000 because of the spousal benefit.

The divorce-roulette-wheel effect. Spousal and survivor benefits apply only to those who stay married at least 10 years. A person who has several marriages lasting at least 10 years could spawn additional spousal benefits each time. Those who remarry and rely on spousal benefits for their retirement can come out behind if their new spouses have lower lifetime earnings than their former spouses.

"Social Security consistently violates notions of equal justice by taxing more or paying less to those who are equally situated," Steuerle says. "Everybody I talk to from left and right agrees this is not a reasonable thing."

The rules under which most Social Security beneficiaries live were designed in the 1930s, when the typical family included a husband who worked outside the home and a stay-at-home wife. At the time, actuarial science was not the primary determinant. Rather, says Steuerle, it was done by a "bunch of guys sitting around a table."

Marriage meant a lot to the designers of the retirement system. If two people married but only one worked, a 50% spousal benefit was added upon retirement. That benefit is proportional to the worker's pay: The more the worker makes, the higher the spousal benefit.

"They were being generous in 1939. They said, 'We'll give the spousal benefit at 50% of the worker's benefit,' " says Stanford Ross, a former Social Security commissioner and chairman of the federal Social Security Advisory Board. "But when you get 65 years down the line, that sort of gives a preference to stay-at-home spouses."

To Malloy, it doesn't make sense. She collects the benefit her late husband would be receiving, but her own payroll taxes from a variety of small jobs produce no benefits. Meanwhile, a relative who never worked is getting spousal benefits on top of her husband's benefits and pension. "I feel she's collecting my Social Security," Malloy says.

A friend and neighbor, Ginette Peterson, struggles on $1,300 from the Railroad Retirement Board, a separate system linked to Social Security. When her husband was alive, they got about $2,300. "In a great country, everybody should get enough to get by," she says.

But reducing spousal benefits to non-workers in order to give working women more is not a popular notion. Heidi Hartmann, president of the Institute for Women's Policy Research, says those benefits are being questioned for the first time. But women's groups still support them as recognition of the unpaid work of homemaking and child-rearing.

If anyone in Congress tried to cut spousal benefits, Hartmann says, "I do think there would be an uproar."

Identifying disparities in the system is easy. Finding a political consensus to fix them is difficult.

When Thomas asked members of the House Ways and Means Committee whether inequities should be addressed, they readily agreed. But to date, no proposals have been forthcoming from Congress.

"Neither side wants to tackle them," Steuerle says. "You're going to create losers as well as winners."

The benefit structure already is progressive: Lower-income retirees and survivors get a better "replacement rate," the percentage of their income that's replaced by benefits. Changes that help the poor even more could be seen as "means-testing" - linking benefits to income to tilt the program even further toward low-income beneficiaries - and run into opposition in Congress. Lawmakers such as Rep. Charles Rangel, top Democrat on the Ways and Means Committee, have said Social Security should not become a "welfare program."

Many women's groups don't want to sever the link between non-working wives and their husbands, because too many women would lose benefits. Today, 60% of older women have benefits tied to men, says Nancy Duff Campbell, co-president of the National Women's Law Center.

"Everybody's willing to get rid of marriage penalties, but it's really hard to get rid of marriage bonuses," says Melissa Favreault of the Urban Institute. "Nobody wants to be the person who wants to cut things."