Does Social Security Discriminate Against Women?

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The American Academy of Actuaries recently testified before the Senate on the issue of women and Social Security, in a hearing called "Is a Key Foundation of Economic Security Working for Women?" It's an interesting question for which there's no easy answer. On one hand, the law as written is gender-neutral, providing workers and their spouses benefits based on their work history without regard to their gender. On the other hand, women's direct benefits are generally lower than men's, due to a variety of factors, including that women often spend more years outside the labor force to care for children.

The academy's conclusion was that "the current Social Security law is gender-neutral and contains spousal and subsidized benefit provisions that mitigate, but do not eliminate, factors that produce lower benefits for women." Or, in other words, the law doesn't directly discriminate against women, and to the extent women's benefits are lower, the gap is smaller than it would have been if the system purely based benefits on contribution levels.

What's Really Fair?

Like much in the political arena, Social Security is a complex topic where legislative sausage-making leads to compromises that are ideal for none but acceptable to enough legislators to get a law through. Take one of the mitigating factors that help reduce the gap between what men and women receive: the "bend" points in the benefit scale. The chart below shows your potential Social Security benefit based on your qualifying income, with two key bend points, where your benefit growth starts slowing, shown where the slope on the chart changes.

This chart by the author is based on Social Security Administration data.
Your benefit amount and thus the bend points are based on your highest 35 years of average indexed monthly earnings over your career. By giving a higher weight to the "first dollars" earned, those who have less time in the workforce get a better return on their Social Security taxes than someone who paid into the system for 35-plus years.

On one hand, that helps women in the aggregate, as women are more likely to leave the workforce for a period. On the other hand, it also means that those with longer careers -- generally, men -- will pay some taxes into Social Security for either no or a very small incremental benefit, thus getting a substantially worse return on the taxes they paid. In a sense, you could argue that those who worked an unbroken career are essentially subsidizing the benefits for those who took time off.

So what's fair? Is it fair that women generally receive less in benefits than men, due to a shorter work history? Or is it fair that men generally receive a poorer return on their tax payments than women, due to the bend points in the Social Security benefit structure?

What Can You Do About It?

In reality, it doesn't really make much of a difference whether you consider Social Security's rules to be completely fair. The rules are what they are, and as the American Academy of Actuaries indicated, they don't change based on a person's gender. Your energy will be far better spent understanding what Social Security's payment rules mean to you in your particular situation -- and what you need to do in light of them in order to have a comfortable retirement.

After all, Social Security on average will only replace around 40 percent of a typical retiree's income. Even the Social Security Administration acknowledges that the program -- no matter what its payment rules -- isn't enough on its own to provide you with a comfortable retirement. Spending too much time focusing on whether the program's generally equitable payment rules are precisely fair to you misses the bigger picture: Those payments simply aren't enough on their own to cover your hopes for your retirement.

So no matter whether you're single, a stay-at-home parent, or a member of a high-powered, dual-income couple, your retirement plan should include more than just Social Security. If you spend your time, effort, and resources on developing and executing that end-to-end plan, you'll likely wind up far better off in your golden years. And isn't that what really matters?

Motley Fool contributor Chuck Saletta has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.
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