People frequently write to me with an idea to change Social Security law in some way that they think is clever and unique. But I usually have to tell them that their proposal has been considered in the past. After all, Social Security has been around for almost 90 years now, and for those nine decades, people have constantly been coming up with plans that they think would improve the system.
And lots of times, those plans don’t work out under closer scrutiny. Here is an example.
Q: I have been a stay-at-home mom and housewife for the past 40 years. Other than a few years when I worked before I got married, I’ve never paid into Social Security. So I am due no benefits on my own record. I will be due benefits only on my husband’s record. I don’t think that’s fair. I should get some kind of Social Security credit for all the work I’ve done as a wife, mother, and homemaker. So here is my idea, which I don’t believe I’ve ever seen before. I think a certain amount of money—maybe $1,000 per month—should be added to the Social Security record of all women who choose to stay home and make a career as a homemaker.
A: Actually, that’s an idea that has been tossed around many times in the past—not quite in the way that you propose, but something similar. It’s usually called “earnings sharing,” and unfortunately, it wouldn’t work.
You suggested that $1,000 per month be added to the Social Security account of stay-at-home moms. So where would that money come from? And if it wasn’t actual money, just some kind of credit added to your Social Security account, those pseudo-credits would eventually lead to Social Security retirement checks for all homemakers. And where would the money come from to pay all of those extra benefits?
And then you would also have to decide how to handle women who work part time and stay home part time. For example, my granddaughter works about 20 hours per week. The rest of the time, she’s home being a mom and housewife. So instead of the $1,000 per month Social Security credit that you suggest that full-time homemakers get, should she get $500 added to her Social Security record?
And what about single women who work full time but then come home and also do lots of work around the house? Shouldn’t they get some kind of Social Security credit for the housework they do?
And for that matter, what about a man who works full time but comes home and watches the kids or does some laundry or cooks a meal or does the dishes? Should he get Social Security credits for the housework that he does?
I hope that you see where I’m going with this. Your proposal, although well-intentioned, would be extremely difficult to implement and administer. That’s to say nothing of all of the extra costs that would be added to an already overburdened Social Security system.
That’s why when ideas like yours were kicked around in the past, many Social Security reformers came up with what they thought was a better solution, which was called “earnings sharing.”
In a nutshell, a couple’s earnings during their marriage would be shared for Social Security purposes. For example, if husband Fred made $100,000 per year, and wife Wilma was a stay-at-home mom with no outside earnings, then $50,000 would be put on Fred’s Social Security record, and $50,000 would be put on Wilma’s Social Security record.
And then let’s look at their neighbors, Barney and Betty. If Barney made $100,000 per year, and Betty also worked outside the home and made $50,000 per year, for a total combined income of $150,000, then $75,000 would be placed in each of their Social Security accounts.
On the surface, this might sound like a good idea to some. But one big reason that this plan never went anywhere is because of the negative impact that this plan would have on a married couple’s potential Social Security benefits.
To show you what I mean, let’s go back to Fred and Wilma. Fred was making $100,000 per year, and Wilma had no Social Security-covered earnings. Under the current Social Security system, because he had fairly high earnings, Fred would probably end up with a pretty high monthly Social Security check. Let’s say it would be $3,000 per month. And under the current system, his stay-at-home wife, Wilma, would qualify for spousal benefits on Fred’s record—anywhere from 30 percent to 50 percent of Fred’s rate, depending on her age. To keep my math simple, we'll give her the 50 percent rate. So that means Fred will get $3,000 per month from Social Security, and Wilma will get $1,500 per month—for total benefits of $4,500 per month.
Now let’s say that the “earnings sharing” rules had been in place all of the years that Fred and Wilma were married—meaning they each got half of Fred’s earnings added to their Social Security accounts. Well, that means Fred would end up with a Social Security benefit of about half as much as he was due under the current system. In other words, Fred would start getting $1,500 per month when he retired. But his wife, Wilma, who had equal earnings on her Social Security record, would also get $1,500 per month. That would be good news for Wilma. She would get her own Social Security check. But for the two of them as a married couple, it would be bad news. Their combined benefits would be $3,000 per month instead of the $4,500 in total benefits that they'd be due under the current system.
Also, under an “earnings sharing” arrangement, things really wouldn’t work out for Wilma after Fred dies. Under the current system, Wilma the widow would get her spousal benefit of $1,500 per month bumped up to Fred’s $3,000 rate. But with “earnings sharing,” where they each end up with identical monthly benefits of $1,500 per month, there is nothing extra to bump up to—so Wilma would get no widow’s benefits.
Those of you who think “earnings sharing” might be a good idea should remember that old saying: “Be careful what you wish for!”
