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Covid-19 caused many women to quit working life.
That’s because many women have been forced to choose between work and caring for their children and families amid a pandemic, and often chose the latter.
The difference in earnings and career prospects is immediately apparent. And it could also have an impact on women’s old-age pensions.
One consolation, according to a report from the Center for Retirement Research at Boston College, is that retirement income from social security can help bridge the income gap between mothers and childless women.
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And changes to social security – especially those related to care loans – could help even more.
How social security helps mothers
Childless women have a median income of $ 3,850 a month. Meanwhile, women with children are making $ 1,409 a month – only 37% as much as their childless counterparts.
However, these income differences narrow with social security benefits.
Childless women get an average of $ 1,301 a month, while mothers get $ 785 a month – 60% of what childless women get, according to the Center for Retirement Research.
The program helps make up the difference for mothers who tend to earn less in several ways. For one, social security has a progressive benefit formula, which means that benefits are more generous for low-income earners.
In addition, women are entitled to spousal allowance if they have been married for at least 10 years. This means that they are entitled to half of the spouse’s pension and are intended to help compensate for wives who stay at home with lost earnings.
However, according to the study, fewer women benefit from spousal benefits. The proportion of women receiving these benefits fell from 35% in 1960 to 18% in 2019.
One reason for this is that women earn more and therefore make social security claims based on their own work records. Another reason is that as marriage rates decrease and divorce rates increase, fewer women meet the 10-year qualification.
How long-term care loans could increase benefits
The Center for Retirement Research report looked at women over the age of 50. However, these dynamics are not expected to change with the younger generation.
“The literature still suggests that there is an income gap in maternity, and it really hasn’t changed much,” said Matt Rutledge, a research fellow at the Center for Retirement Research.
“It suggests that future generations are unlikely to see much of another image, at least not yet,” he said.
In addition, childless mothers may have more money to invest in 401 (k) s and other retirement plans, which could widen their retirement income gap with mothers.
One way to help women who are more likely to take time off to look after children or other people is to offer so-called care loans.
This would allow certain years of low or zero income to be ignored instead of using the highest 35 income years to calculate a social security benefit. For example, the performance calculation can only be based on the top 30 years.
“By definition, we’d end up giving people more money,” Rutledge said.
In particular, President Joe Biden’s campaign plans for social security reform included long-term care loans. A bill called the Social Security Caregiver Credit Act has also been proposed to address the problem.
That bill was approved in May by Senator Chris Murphy, D-Conn., And Reps. Brad Schneider, D-Ill., And Grace Meng, DN.Y.
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