How to Green the Golden Years

For women who quit or cut back their work to care for families, the Portman-Cardin bill might help make up for some of their lost retirement savings

The most frequently asked question I get from women readers is whether or not they will have enough money to see them through their golden years. That's a question Congress will address when Representatives Rob Portman (R-Oh.) and Benjamin Cardin (D-Md.) reintroduce their comprehensive retirement legislation this month. This plan has a section called the "catch-up" provision that lets people 50 and older increase their payments to retirement plans, helping them make up for years when they weren't working or were unable to set aside retirement savings. Not surprisingly, many people in these situations are women who quit work to raise a family. This bill is a good start, but by no means all that needs to be done.

Of course, the need to save for retirement is a genderless issue. But the impact of a savings shortfall is not. That's because women are at greater risk of poverty in old age or after divorce than men. In 1997, 14.7% of women over 65 were poor, vs. 8.2% of men. The poverty rate among elderly widows was 20.3%, and for single divorced women, 27%, says a new book, The Price of Motherhood: Why the Most Important Job in the World Is Still the Least Valued, by Ann Crittenden (Metropolitan Books, $25).

This situation isn't just happenstance. When women quit their jobs or work part-time to raise a family, they reduce their lifetime earnings and savings. On average, during their working lives, women spend 12.6 years out of the workforce, vs. only 10.4 months for men. Of those who remain full-time, 47% are covered by pension plans (compared with 52% of men), according to 1999 data from the Pension & Welfare Benefits Administration. As a result of lower earnings growth than men and a longer life span, "women will typically have a bigger [retirement savings] shortfall relative to what they should be saving," says B. Douglas Bernheim, a Stanford University economics professor.

Such sobering statistics provide backbone for the pension bill, which has broad bipartisan support and is expected to be included in the tax bill Congress sends President Bush. Among other things, the bill raises the annual contribution limits for 401(k)s to $15,000 from $10,500. The catch-up provision, one of nearly 50 components, then lets those 50 and older catch up by socking away an extra $5,000 a year (table).

Some critics argue that the catch-up provision doesn't help the people who really need it. Women earn a median annual income of just over $25,000 (vs. $35,000 for men), so the rise in contribution limits won't matter to many. After all, most can't even afford to sock away the current 401(k) or IRA maximums. But that brings up a much larger problem: how to provide adequate retirement support for lower-wage earners.

Any way the government can help workers save more for retirement is welcome. But let's face it: If our legislators really want to help those who have fallen behind, the catch-up provision is just the first step. They should also offer remedies that specifically target people who have temporarily stopped working.

For example, the law could set a sliding scale for higher retirement-account savings: The longer you've been out of the workforce, the more you can contribute to catch up. Beyond that, Congress should change Social Security vesting rules so anyone who takes an extended work leave for family reasons still gets credit toward future benefits. Both moves would acknowledge that people--mainly women--who interrupt their careers to care for their families are making a valuable contribution to society.

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By Toddi Gutner

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