Here's What You Need to Know: Women with children earn fewer benefits than childless women.
Social Security is intended to cover roughly forty percent of a person’s pre-retirement income. The payout’s total amount is calculated based on a person’s thirty-five most productive years in the labor force, providing some measure of similarity between a person’s Social Security taxes—the amount paid into the system over the years—and the amount received when filing for Social Security payments.
The problem with this is that not all people participate in the labor force for thirty-five consecutive years. Indeed, in general, many women (and, to a lesser extent, some men) will take time off from work in order to raise children, which the Social Security Administration does not take into account in the calculation of its benefit payments.
In principle, the agency does not discriminate on the basis of sex. However, in general, women tend to spend more time with their children than men do, helping to create a “motherhood earnings penalty” for mothers who reduced or stopped work for childcare. This penalty persists through the workforce, and translates to Social Security, although the redistributive elements of Social Security help to shrink the penalty slightly in comparison to the workforce at large.
According to the Center for Retirement Research at Boston College, in a survey of 20,000 Americans’ tax information and Social Security benefits, women who left the workforce to have children made only thirty-seven percent of the money that women who focused on their careers did. However, when it came time to receive Social Security, women with children made on average sixty percent of what childless women did.
The reasons for this are clear. A person’s earnings during their career should influence their social security payment because higher earners pay higher Social Security taxes. This is why the Social Security Administration includes the stipulation that payments are based on a person’s highest-paid thirty-five years, rather than simply including a flat rate for all Americans.
However, the correlation between money spent in Social Security taxes and money received back in retirement payments is never exact, with working-class Americans generally enjoying a higher percentage back of their pre-retirement income. Moreover, above a certain income cut-off—set at $142,800 per year as of 2021—Social Security is not paid out, shifting the median downward.
As for the motherhood penalty, it is a difficult problem to solve without overhauling the Social Security system. However, there are certain measures the agency could take—such as expanding the Spouse Benefit, an extra payment to spouses that helps to raise their own payment level to their (usually higher) spouse’s.
Trevor Filseth is a current and foreign affairs writer for the National Interest.
This article first appeared in August 2021.
Image: Jim Watson/Pool via REUTERS