How Does Women Working Affect Social Security Replacement Rates?
Women’s lives and careers have changed dramatically in the post-war era. Marriage rates have declined while women’s labor force participation and earnings have increased. This paper seeks to determine the impact of these sweeping changes on the adequacy of Social Security retirement benefits, specifically how much of U.S. individuals’ and households’ pre-retirement income is replaced by their Social Security benefits. Further, we decompose the reasons behind changes in the replacement rates, such as labor supply, marital patterns, and Social Security claiming decisions. First, our estimates based on data from the Health and Retirement Study and the Modeling Income in the Near Term project show that replacement rates have dropped sharply and will continue to decline for future retirees. For all U.S. households, for example, the median replacement rate is projected to drop by 11 percentage points, from 50 percent for households born in the early 1930s to 39 percent for GenXers born in 1966-75. 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 fact that changes in claiming behavior have not kept pace with increases in the Full Retirement Age. In a third finding, the ratio of Social Security retirement benefits to contributions has declined with each age cohort, indicating an extended life for the trust fund.