April Yanyuan Wu and Alicia H. Munnell (Center for Retirement Research at Boston College), Nadia Karamcheva (Urban Institute), and Patrick Purcell (Social Security Administration)

14th Annual Retirement Research Consortium ConferenceWashington, DCAugust 3, 2012

How Does the Changing Role of Women Affect Social Security?

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Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.

Labor Force Participation, by Marital Status

Changing role of women: labor supply

1931-1935

1936-1941

1942-1947

1948-1953

1954-1959

1960-1965

1966-1975

30%

40%

50%

60%

70%

80%

All women 25-34

Married women 25-34

Birth year

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Changing role of women: earnings

1931-1935

1936-1941

1942-1947

1948-1953

1954-1959

1960-1965

1966-1975

20%

30%

40%

50%

60%

70%- - - - - Projected

Birth year

Ratio of Median Wife’s to Husband’s Lifetime Earnings

Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.

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Changing role of women: marital patterns

1931-1935

1936-1941

1942-1947

1948-1953

1954-1959

1960-1965

1966-1975

30%

40%

50%

60%

70%

80%

90%

25-34

Birth year

Percent of Women Married, by Age

- - - - - Projected

Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.

Research question

• How do the changing lives of women affect Social Security replacement rates and the program’s finances?o Trends in replacement rates

A broad range of cohorts, from Depression to Generation X

By marital status and income distributiono Decompose differences into contributing factors o Estimate the impact of changes on Social Security’s finances

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Preview of results• Decline in Social Security replacement rates 13 percentage points between the 1930s cohort and GenXers

• Changes vary by martial status and income distributiono Smallest among the never married o Largest for couples with husbands’ earnings in top tercile

• Factors explaining the drop in replacement rateso Increased labor supply and earnings: > 1/3o Changing marital pattern: relatively small impacto Increased FRA and changing claiming behaviors: 1/3

• The ratio of benefit to contribution has declined: 22 percent

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• Health and Retirement Study (HRS)o Original HRS (1931-1941) o War Baby (WB, 1942-1947)o Early Baby Boomers (EBB, 1948-1953)

• Modeling Income in the Near Term (MINT)o Middle Baby Boomers (MBB, 1954-1959)o Late Baby Boomers (LBB, 1960-1965)o Generation X (GX, 1966-1975)

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Data

• The replacement rate: Social Security benefit/career average indexed earnings (AIME)o Construct lifetime earnings profile

HRS: Gustman and Steinmeier (2001); Coe et al. (2012) MINT: simulate the whole earnings profile

o Estimate Social Security benefits Marital status at time of first receipt of benefits

o Calculate replacement rates at time of first benefit receipt Individual level Household level

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Methods

Changes in replacement rates: current retirees

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Household type  HRS War Baby Early BoomerWeighted average 46% 40% 39%Never married 45% 38% 42%Currently married 44% 44% 38%Widowed 59% 54% 51%Divorced 47% 40% 39%

Estimated Replacement Rates, Household Level

Source: Authors' calculations using the University of Michigan. Health and Retirement Study. Ann Arbor, MI.

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Estimated replacement rates (median, single-earner households)      HRS War Baby Early Boomer

Husband's earningsLow 72% 79% 76%Median 54% 49% 51%High 47% 38% 40%

           Estimated replacement rates (median, dual-earner households)      HRS War Baby Early Boomer

Husband's earningsLow 51% 44% 46%Median 42% 36% 36%High 36% 31% 30%

Changes in replacement rates: current retirees (cont’d)

Source: Authors' calculations using the University of Michigan. Health and Retirement Study. Ann Arbor, MI.

Changes in replacement rates: projection

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Estimated Replacement Rates, Household Level

Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.

Household type HRS 1931-1935

HRS 1936-1941

War BabyEarly

BoomersMiddle

BoomersLate

BoomersGeneration

Xers

Weighted average 50% 48% 45% 45% 44% 39% 39%

Never married 47% 47% 43% 44% 44% 40% 40%

Currently married 47% 45% 42% 42% 41% 37% 36%

Widowed 64% 61% 60% 55% 53% 48% 53%

Divorced 52% 48% 46% 46% 44% 40% 41%

Explaining differences over time

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Factors contributing to the changes over time:

• Labor force participation

• Marriage pattern

• And…changes in FRA and claiming behaviors

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Comparison of replacement rates

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Actual Claiming Age vs. Claiming at FRA

Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.

HRS 1931-1

935

HRS 1936-1

941

War

Baby

Early B

oomers

Mid

dle Boom

ers

Late B

oomers

Genera

tion X

ers0%

20%

40%

60%Actual claiming age Claiming at FRA

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Oaxaca-Blinder decomposition

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Explained Unexplained

X: labor force; marital status; claiming behaviors

Explaining differences over time

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0.00

0.04

0.08

0.12

0.16

Labor forceMarital statusClaiming behavior

Decomposition: Actual Gaps in Replacement Rates, All Households

Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.

1/3

1/3

Explaining differences over time (cont’d)

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Percent of Actual Change

Changes between HRS1 and GenX

Actual changes in gap

Demographics

Claiming behaviors

Labor suppl

y

Spouse’s demographics

Spouse’s claiming behaviors

Spouse’s labor

supply

Unexplained

Married 0.1 1.7% 23.1% 25.5% 0.3% 18.2% 28.2% 3.0%

Widowed 0.2 7.3% 26.0% 55.9% 11.2%

Divorced 0.1 0.0% 50.2% 46.7% 2.9%

Never married

0.2 -0.4% 56.6% 41.8% 2.0%

Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.

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Impacts on Social Security Finances

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 HRS

1931-1935

HRS 1936-1941

War Baby

Early boomers

Middle boomers

Late boomers

Generation X

All 1.6 1.6 1.4 1.3 1.3 1.2 1.2

Never married 1.4 1.4 1.2 1.2 1.2 1.2 1.2

Married 1.5 1.6 1.4 1.3 1.3 1.2 1.2

Widowed 2.6 2.5 2.0 1.6 1.5 1.4 1.4

Divorced 1.5 1.7 1.4 1.3 1.3 1.2 1.2

Median Ratio of Present Value of Benefits over Taxes across Cohorts

Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.

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Conclusions

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• Replacement rates have declined and will continue declining for future retirees

• Increased labor supply explains over 1/3 of the decline over time

• Marital patterns: significant but small impact• Changes in FRA and claiming behaviors also play an

important role