How Does Women Working Affect Social Security Replacement Rates?

The Social Security Trustees Report states that replacement rates for the medium earner rose from about 30 percent in the 1970s to 40 percent in the 1980s, where they remain today. However, the focus on individual earners is often misleading as many people work and retire as part of a married couple, making the household a more appropriate unit of analysis. And replacement rates for households depend on more than Social Security provisions; they also depend on the labor force activity of each spouse. These dimensions have been changing dramatically with the increased labor force participation of women. This brief reports on a recent study that explores how the changing lives of women affect Social Security replacement rates for households across seven cohorts: Depression Era 1 (born 1931-35), Depression Era 2 (1936-41), War Baby (1942-47), Early Baby Boomers (1948-53), Middle Baby Boomers (1954-59), Late Baby Boomers (1960-65), and Generation Xers (1966-75). The analysis uses Modeling Income in the Near Term (MINT), a microsimulation model developed by the Social Security Administration (SSA). The discussion proceeds as follows. The first section describes how Social Security benefits and replacement rates are determined. The second section highlights the changing work force activity of women. The third section summarizes the trends in replacement rates across cohorts, focusing on married households. The fourth section decomposes the decline in replacement rates over the seven cohorts to compare the changing role of women with other factors, such as claiming behavior. The final section concludes that the changing role of women has led to a marked decline in replacement rates that will continue for future retirees.