How Do the Changing Labor Supply Behavior and Marriage Patterns of Women Affect Social Security Replacement Rates?

Abstract

for their thoughtful comments and suggestions.© 2013, April Yanyuan Wu, Nadia S. Karamcheva, Alicia H. Munnell, and Patrick Purcell. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. About the Center for Retirement ResearchThe Center for Retirement Research at Boston College, part of a consortium that includes parallel centers at the University of Michigan and the National Bureau of Economic Research, was established in 1998 through a grant from the Social Security Administration. The Center's mission is to produce first-class research and forge a strong link between the academic community and decision-makers in the public and private sectors around an issue of critical importance to the nation's future. To achieve this mission, the Center sponsors a wide variety of research projects, transmits new findings to a broad audience, trains new scholars, and broadens access to valuable data sources. the Near Term, show that Social Security replacement rates have dropped sharply at both the household-and individual-level, and the decline will continue for future retirees. Our second finding is that this aggregate change masks a complex relationship between replacement rates and the marital status and income levels of individuals. The decline in replacement rates over time is largest for married couples with husbands whose earnings are in the top tercile.Decomposing the reasons for the overall decline shows that increases in the labor supply and earnings of women explain more than one-third of the change. In contrast, the impact of changing marital patterns is relatively small. Much of the remaining explanation rests with the increased Full Retirement Age and changing claiming behaviors.

Does Social Security Continue to Favor Couples?

“…As women's labor force participation and earnings increase, more and more female retirees will receive benefits based on their own working record, and fewer of them will be eligible for only auxiliary benefits, based on their husbands' working history. Wu et al (2013) reported that only 37 percent of the 24 to 35 year-old women in the Depression Era 1 (1931)(1932)(1933)(1934)(1935) cohort worked, compared with 73 percent of their counterparts, born 35 years later -Gen X (1966)(1967)(1968)(1969)(1970)(1971)(1972)(1973)(1974)(1975). The increase in the propensity to work is particularly pronounced among married women.…”

“…Compared to 30 years ago, married women today have higher levels of education, increased labor force participation, more stable career trajectories, and higher salaries. Wu et al (2013) examined how women's changing lives have affected the Social Security replacement rates that individuals and households receive at the time of first claiming. Their study found that Social Security replacement rates have dropped sharply at both the household and individual levels, and the declines will continue for future retirees.…”

Validating Longitudinal Earnings in Dynamic Microsimulation Models: The Role of Outliers

“…But they can provide an important illustration of some of the longitudinal properties of high earnings and how they would play out under proposals to remove or increase OASDI's contribution and benefit base. 37 We would expect that future cohorts, and especially future cohorts of women, would have different experiences (see, for example, Wu et al 2013). …”

Pension-spiking, free-riding, and the effects of pension reform on teachers' earnings

“…This is particularly true of teachers, whose earnings increase quite significantly at the end of their careers, despite a lack of agreement amongst researchers about whether quality also increases over this period (Papay and Kraft 2015; Wiswall, 2013; Clotfelter et al 2006; Rivkin, Hanushek and Kain, 2005; and Rockoff, 2004). Also drawing attention to teacher pensions is the fact that some teacher pension benefits provide retirees with income replacement rates over 85 percent, making retirement benefits much more generous than, for example, the median Social Security benefit (Wu et al 2013). …”