Washington, D.C. — Perhaps he was hoping to make headlines that didn’t include the name "Starr," but President Clinton shocked his union pals this week by voicing qualified support for including individual retirement accounts – or partial privatization – as a part of any plan to reform Social Security. The President’s tentative acceptance of a role for private markets in reforming Social Security bodes very well for the future of retirement security in this country. And retirement security is certainly a significant issue for women.

Women live longer than men do, and some studies find that a majority of elderly women lives in poverty. Yet the current Social Security system – if left as is – would leave baby-boomer women less financially secure in their old age than elderly women today.

The current system was designed over sixty years ago, and the world was a different place for American women. The old system, designed for male bread-winners and stay-at-home mothers, is an anachronism in the modern economy.

Business is now the most popular major for women on college campuses, divorce rates are still high, women marry later and are having fewer children. Women are much more concerned with their own retirement security, and much more aware of the possibilities for ensuring that security.

In protest of a privatized retirement system, politicians and political groups cite a litany of patronizing concerns: women are too averse to risk; women tend to earn less and take more time out of the work force; women tend to live longer than men. Can individual retirement accounts provide a safe future, given these factors? The answer is yes, according to a new study from the Cato Institute, which shows that virtually all women in the country would be better off under a privatized Social Security system.

It’s true – privatization wouldn’t just help women with MBAs. The Cato study finds that even among low-income women with interrupted work histories, a fully privatized retirement system leaves them significantly better off than the old system. And there are several reasons not to worry about how women would fare under a privatized or partially privatized system.

Most important, there’s more money to make – even the private market’s most conservative investments beat the returns on payroll tax "investments" in Social Security. Women’s labor force participation is, on average, shorter; lifetime contributions are lower. In most cases, women would fare better by diverting payroll taxes into individually owned accounts.

Second, as the Cato study observes, investment companies are already engaged in major outreach campaigns to potential women investors. Some have created investor education seminars that will help close the information gap between men and women. Of course, the incentive of managing one’s own money will also motivate many women to educate themselves about the ins and outs of the investment world.

Finally, most reform plans provide a minimum floor benefit, ensuring that every person will have some degree of security. In other words, there won’t be any cataclysmic free-falls for the next generation of elderly women. Anyone predicting such chaos just wants to scare off the possibility of giving people control over their own money.

The President’s tentative embrace of the free market is not a newfound libertarianism – it is simply an acknowledgement of reality. Most private investments would yield a much higher rate of return than the current Ponzi scheme. Whatever his motives, the President is on the right track by opening the door to private markets in Social Security reform. By converting Social Security over to individual retirement accounts, even partially, the returns will be higher, people will have the incentive to plan aggressively for their own retirement, and we will all enjoy the freedom to make our own choices.

— Katherine Post

Director of the Center for Enterprise and Opportunity