Personal Finance

Families take a dim view of the high cost of Rubio's proposed leave plan

Key Points
  • In Sen. Marco Rubio's proposal for paid family leave, two months’ leave would delay Social Security by six months.
  • The benefit would replace between 50 percent and 80 percent of pretax earnings, but would mean a loss in benefits at the end of a worker’s life, according to a new report from the Urban Institute.
  • The family leave could be used only by parents for the birth or adoption of a child. 
Mike Kemp | Blend Images | Getty Images

Staying home with a new baby is a luxury – but only in the U.S.

That's because bonding with an infant generally means giving up income at a time when expenses are going up.

Less than a quarter of private-sector workers have paid family leave, according to the Bureau of Labor Statistics. Just five states – California, New Jersey, New York, Rhode Island and Washington – and Washington, D.C., mandate paid family leave. Of course, every worker is eligible for 12 weeks of unpaid leave under the Family and Medical Leave Act.

By contrast. most industrialized countries offer financial support to new parents.

Of 41 nations, only U.S. lacks paid parental leave

Are parents willing to trade future Social Security benefits for paid leave when they have a new baby?

That's what proposed legislation by Sen. Marco Rubio (R-Fla.) would mean.

The proposal would let new parents borrow against their future Social Security income. Parents with lower incomes would be able to take two months leave at more than 70 percent of their wages, according to a release from Rubio's office. Parents would then delay the date at which they begin receiving Social Security retirement benefits – essentially repaying the amount of the leave benefit with interest.

In a tweet, Sen. Rubio said, "I don't want to fund #PaidFamilyLeave with #SocialSecurity. I want working American parents to have the OPTION of funding THEIR paid leave by drawing early on a portion of THEIR social security benefits which THEY paid for with THEIR taxes."

Repay with a Social Social delay

In other words, a paid leave is funded and repaid through an individual's actual Social Security account decades later.

Each paid leave would reduce an individual's ultimate Social Security benefits, according to Urban Institute researchers.

That's because on the other end of your working life, you'd have to wait six months longer to qualify for your full retirement age benefit, according to the Urban Institute report, although your monthly benefit amount at full retirement age would not change.

Letting people tap Social Security benefits for a non-retirement situation is problematic, says Richard Johnson, director of the Program on Retirement Policy at the Urban Institute.

The biggest thing that's hard to grasp is that participants would have to start paying back their leave benefits with interest decades later, when they collect Social Security in retirement. That's why a two-month parental leave would mean delaying Social Security by six months.

More children and more leaves would mean longer delays in collecting benefits for retirement. People who earn more would receive a bigger benefit and would also have to repay a larger amount.

"I am not against paid leave or postponing Social Security but I think it should be equal time frames," said LisaJoy Zillgitt-Stowers, an addiction therapist in Bulls Gap, Tennessee, and the mother of one child. "If I take two months leave, then I [should] postpone Social Security for two months."

Zillgitt-Stowers thinks the method of borrowing from Social Security is a good idea. "It can be beneficial in the moment," she said.

But the repayment calculation, made in 2018 inflation-adjusted dollars, reminds Zillgitt-Stowers of an opportunistic payday loan. "In Tennessee, if you take an advance loan, you have to pay about 260 percent in interest," she said.

The amount you take out should be roughly the same that you repay, she says.

The reason it isn't a one-for-one exchange, says Johnson, is that a person receives three times their Social Security disability benefit for a two-month leave. "It's similar to a retirement benefit, but it is computed differently because you are younger," Johnson said.

Gambling with future income

Another flaw in the proposal is the reasoning is that it's no big deal to delay retirement by six months.

"We know that as people approach retirement, bad things happen," Johnson said. "People develop health problems, they lose their jobs. Healthy people at age 50 can develop issues at 65."

Retirement income is coming under pressure from several directions. Many people rely solely on Social Security in retirement, and health-care costs for retirees are rising.

How much does it cost to raise a child? New data shows well over $1 million

The Social Security system is running out of money, and Congress may cut the benefit. If that happens, people who participate in the leave program could stand to lose even more, Johnson says.

Harder on the poor

"The fact you have to pay it back is unusual," Johnson said. It raises questions about who should share in the cost of raising children.

Paid leave should be a benefit provided by employers, says Jennifer Himes, a customer service rep in Pittsburgh . "This is a scam to take your own money out of your retirement fund," she said, "thus lowering the amount of money you will have at retirement."

The burden of repayment would fall disproportionately on poorer families and women, says Johnson.

Freelance workers will also take a financial hit. "Lots of people are freelancing at things you don't think about," said Rebecca Sommerhauser, 54, who lives in St. Louis, such as the grocery delivery service Shipt, or driving services like Uber and Lyft.

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The positive aspects of the proposal are that paid leave and its importance are now topics of discussion. "Policy policymakers are at least thinking creatively about how to do this," Johnson said. "But this might not be the solution. There are lot of red flags."

A statement on Sen. Rubio's website says the Urban Institute study fails to factor in the proposal's transferability, which the senator says is a key feature.

"The benefit will also be transferable between parents in the household," Sen. Rubio and Rep. Ann Wagner (R-MO), wrote last month. Stay-at-home moms and dads, as well as working parents, would be eligible to take this option.

Sommerhauser says she finds it distressing that the legislators and Congressional representatives drafting these proposals are mostly middle-aged or older men who won't have to worry about a pension.

"They will never have to worry about hospital bills or if their parents get sick," Sommerhauser said. "To them, $13,000 is nothing to pay back. [But] that is a lot of money for people that are not in their income group."

Gambling that you will be able to delay collecting Social Security benefits is a decision few can make with certainty. "When you're 35, you have all these ideas about what you're going to do when you retire," Sommerhauser said. "You have no idea how the winds are going to buffet you in life."