Think Advisor’s recent article asks, “Will Motherhood Cut Your Social Security Benefits?” A brief from the Center for Retirement Research at Boston College examined data on the effect that lingering caregiving responsibilities—time lost from work for childbearing and child rearing—can have on women. They discovered that it takes a financial toll not just on lifetime earnings, but also on Social Security benefits.
Using the Health and Retirement Study linked to administrative earnings records, the researchers focused on three questions in determining whether, and how much, motherhood might cost women in Social Security benefits. They said that “[i]f motherhood lowers earnings, and these losses are not made up later, then having children could give rise to a career’s worth of lower annual earnings, which would result in significantly smaller Social Security checks.”
However, most studies target reductions in women’s earnings only in the years in which their children are young. This means the extent to which motherhood is associated with lower earnings throughout mothers’ entire working lives isn’t well understood.
Since Social Security has a progressive benefit formula to compensate lower earners by allowing them to keep a higher share of their earnings, it wasn’t clear if the motherhood penalty also ran over into Social Security benefits.
Researchers first studied how much less mothers earn during their careers, compared to childless women and how much less they earn for each additional child. The amount is significant: lifetime earnings of mothers with one child are 28% less than the earnings of childless women, with all other factors being equal. Each additional child also decreases lifetime earnings by another 3%.
There’s also the question of how Social Security benefits differ between mothers and nonmothers. The motherhood penalty is smaller than the earnings penalty. However, those with one child still receive 16% less in benefits than non-mothers, and each additional child reduces benefits by another 2%.
The study also examined how each of the existing elements of the Social Security system that indirectly help mothers—the spousal benefit and the progressivity of the benefit formula—contribute to reducing the motherhood penalty. The results showed that while the per-child motherhood penalty is extremely small among women receiving spousal benefits, mothers who receive benefits on only their own earnings histories see drastically less in Social Security income than childless working women, and for each child.
The researchers concluded that mothers wind up less well off in economic terms, when spousal benefits aren’t available. If receiving spousal benefits continues its likely decline, there is discussion on whether policymakers may want to look at compensating women for their lost earnings due to motherhood.
Reference: Think Advisor (January 23, 2018) “Will Motherhood Cut Your Social Security Benefits?”