Working Wives Reduce Social Security Replacement Rates

Alicia H. MunnellGeoffrey T. Sanzenbacher Mauricio Soto

IB#7-15

Introduction

The general perception is that the Social Security program expanded significantly in the 1970s and today benefits are much higher relative to pre-retirement earnings than they were prior to that expansion.  Indeed, the Social Security Trustees Report shows that the replacement rate — benefits as a percent of pre-retirement earnings — for the average worker rose from about 30 percent in 1970 to about 40 percent in 1980, where it remains today.

Most people, however, retire as married couples, sharing and replacing a common household income.  Thus, to understand the role of Social Security in the nation’s retirement income system, it thus is crucial to consider the replacement rate of couples — as opposed to single individuals — and how that rate has changed over time.  Indeed, the increasing labor force participation of married women has led to a significant reduction in the replacement rates for couples.  Combining the rising replacement rates for individual workers with the declining replacement rates for couples shows the 1970s expansion of Social Security to be less dramatic than generally thought…