A stray thought on Social Security and mothers

Last updated on: September 15, 2016 at 7:49 am by Jane the Actuary

A stray thought on Social Security and mothers 2016-09-15T07:49:46-06:00 Jane the Actuary

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So a month ago, I asked the question, “What should Social Security do about mothers?” in light of Clinton’s proposal to provide top-up credits for women who leave the workforce to be unpaid caregivers, for their children or elderly parents.

But consider this:

Social Security takes the average of one’s 35 highest years of pay, on an indexed basis. A college graduate working a full career and retiring at the (upcoming) normal retirement age of 67 will have actually worked for 45 years. This means that workers get a “pass” for 10 years — regardless of what the reason is for being out of the workforce, whether it’s to care for children, or due to spells of unemployment, or starting your career late due to grad school.

That also means that, if you’ve had a full career without any breaks, again, assuming 4 years in college, once you hit age 57, you continue paying your FICA tax with the fiction that you’re earning Social Security benefits, but you’re not, really, except to the extent that higher years of pay replace lower years in the average calculation — but these annual pays are indexed with general wage inflation, so it might not make that much difference, if your pays more or less increase with the national average and if wage increases stagnated as you approach retirement. Is this “fair”? That’s not really an appropriate question — it’s just another one of the ways in which, much as politicians like to tell us that Social Security benefits are “earned,” in reality there are significant redistributive components.

Now, in the same way as (discussed in the above-linked post) various other countries give mothers credit for having children (sometimes filling in for years out of the workforce, sometimes simply as a bonus for having kids), there are also countries which require a longer “full career” but have more exceptions to the required years. For instance, France fills in “missing” years from a requirement for 41.5 years, for any time collecting unemployment benefits and two years per child (credited to the mother, or shared with the father, and regardless of whether you were absent from the workforce). Ireland credits missing years when a recipient of disability, maternity, or unemployment benefits. And it seems to me that there are other countries where years spent as a student count, too, though none come to mind right now.

So it occurs to me that, for both those who want to bump up Social Security benefits for the “deserving poor” and those who want to control the increase in Social Security spending, this 35-year “accrual” component of Social Security is due to be addressed. After all, there are many “good reasons” for being absent from the workforce, from caregiving to unemployment to education, and individuals who have poverty-level Social Security benefits have likely had a significant number of 0s in their pay average due to absences from the workforce, so could be helped by a lower averaging period in general. On the other hand, raising the retirement age ought to reasonably be accompanied by changes in the years of required work history.

What do you think? If you were starting from scratch, how many working years would you require to accrue a full benefit? Or should the benefit increase proportionately for every year that you work, with no limit?

image: https://commons.wikimedia.org/wiki/File:Social_security_card.gif; originally produced by the Social Security Administration and in the public domain

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