Working Wives Reduce Social Security Replacement Rates
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...
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Alicia H. Munnell is the Director of the Center for Retirement Research at Boston College (CRR) and the Peter F. Drucker Professor of Management Sciences at Boston College’s Carroll School of Management. Geoffrey Sanzenbacher is a graduate research assistant at the CRR. Mauricio Soto is a research economist at the CRR. The authors would like to thank Michael Clingman and Orlo Nichols for very helpful comments. Of course, the findings and conclusions expressed in this brief are solely those of the authors.