As more women opt out of the workforce, here’s what we know about how that could affect their Social Security benefits

Personal finance

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Covid-19 prompted many women to leave the workforce.

That’s because many women were forced to choose between working and taking care of their children and families amid a pandemic often opted for the latter.

The difference in earnings and career prospects can be seen immediately. And it could also have implications for women’s retirement security.

One consolation, according to a report from the Center for Retirement Research at Boston College, is that income from Social Security in retirement may help bridge the income gap between mothers and childless women.

And changes to Social Security — particularly with regard to caregiver credits — could help even more.

How Social Security helps mothers

Childless women have median earnings of $3,850 per month. Meanwhile, women with children take in $1,409 per month — just 37% as much as their childless counterparts.

However, that income disparity narrows with Social Security benefits.

Childless women receive a median benefit of $1,301 per month, while mothers get $785 per month — 60% of what childless women receive, according to the Center for Retirement Research.

The program helps make up for the difference for mothers, who tend to earn less, in a couple of ways. For one, Social Security has a progressive benefit formula, which means benefits are more generous for lower earners.

In addition, women may qualify for spousal benefits provided they have been married for at least 10 years. That means they are entitled to one-half of a spouse’s benefit, and were designed to help compensate stay-at-home wives who missed out on earnings.

However, fewer women are benefiting from spousal benefits, according to the research. The share of women collecting those benefits dropped to 18% in 2019, from 35% in 1960.

One reason is that women are earning more, and therefore claiming Social Security based on their own work records. Another is that as marriage rates decrease and divorce rates increase, fewer women are meeting the 10-year qualification.

How caregiver credits could increase benefits

The Center for Retirement Research report took a look at women over age 50. Yet these dynamics are not necessarily expected to change with younger generations.

“The literature still suggests that there’s a motherhood earnings gap, and it really hasn’t changed that much,” despite women participating more in the workforce, including in management roles, said Matt Rutledge, research fellow at the Center for Retirement Research.

“It suggests that future generations probably won’t see much of a different picture at least not yet,” he said.

Moreover, childless mothers may be able to invest more money in 401(k)s and other retirement plans, which could widen their retirement income gap with mothers.

One way to help women, who tend to be more likely to take time out of the workforce to care for children or other people, would be to offer so-called caregiver credits.

That way, instead of taking the top 35 years of earnings to calculate a Social Security benefit, certain years where income is low or zero could be disregarded. The benefit calculation may be based on only the top 30 years, for example.

“By definition, we would end up giving people more money,” Rutledge said.

Notably, President Joe Biden’s campaign plans for Social Security reform included caregiver credits. A bill called the Social Security Caregiver Credit Act has also been proposed to address the issue.

That bill was reintroduced in May by Sen. Chris Murphy, D-Conn., and Reps. Brad Schneider, D-Ill., and Grace Meng, D-N.Y.

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