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How Does the Changing Role of Women Affect Social Security ?

How Does the Changing Role of Women Affect Social Security ?. April Yanyuan Wu and Alicia H. Munnell (Center for Retirement Research at Boston College), Nadia Karamcheva (Urban Institute), and Patrick Purcell (Social Security Administration)

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How Does the Changing Role of Women Affect Social Security ?

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  1. How Does the Changing Role of Women Affect Social Security? 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 Conference Washington, DC August 3, 2012

  2. Changing role of women: labor supply Labor Force Participation, by Marital Status Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.

  3. Changing role of women: earnings 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.

  4. Changing role of women: marital patterns 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.

  5. Research question • How do the changing lives of women affect Social Security replacement rates and the program’s finances? • Trends in replacement rates • A broad range of cohorts, from Depression to Generation X • By marital status and income distribution • Decompose differences into contributing factors • Estimate the impact of changes on Social Security’s finances

  6. 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 distribution • Smallest among the never married • Largestfor couples with husbands’ earnings in top tercile • Factors explaining the drop in replacement rates • Increased labor supply and earnings: >1/3 • Changing marital pattern: relatively small impact • Increased FRA and changing claiming behaviors: 1/3 • The ratio of benefit to contribution has declined: 22 percent

  7. Data • Health and Retirement Study (HRS) • Original HRS (1931-1941) • War Baby (WB, 1942-1947) • Early Baby Boomers (EBB, 1948-1953) • Modeling Income in the Near Term (MINT) • Middle Baby Boomers (MBB, 1954-1959) • Late Baby Boomers (LBB, 1960-1965) • Generation X (GX, 1966-1975)

  8. Methods • The replacement rate: Social Security benefit/career average indexed earnings (AIME) • Construct lifetime earnings profile • HRS: Gustman and Steinmeier (2001); Coe et al. (2012) • MINT: simulate the whole earnings profile • Estimate Social Security benefits • Marital status at time of first receipt of benefits • Calculate replacement rates at time of first benefit receipt • Individual level • Household level

  9. Changes in replacement rates: current retirees Estimated Replacement Rates, Household Level Source: Authors' calculations using the University of Michigan. Health and Retirement Study. Ann Arbor, MI.

  10. Changes in replacement rates: current retirees (cont’d) Source: Authors' calculations using the University of Michigan. Health and Retirement Study. Ann Arbor, MI.

  11. Changes in replacement rates: projection 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.

  12. Explaining differences over time • Factors contributing to the changes over time: • Labor force participation • Marriage pattern • And…changes in FRA and claiming behaviors

  13. Comparison of replacement rates 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. 12

  14. Oaxaca-Blinder decomposition Explained Unexplained X: labor force; marital status; claiming behaviors 13

  15. Explaining differences over time Decomposition: Actual Gaps in Replacement Rates, All Households 1/3 1/3 Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.

  16. Explaining differences over time (cont’d) Percent of Actual Change Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.

  17. Impacts on Social Security Finances 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. 16

  18. Conclusions • 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 17

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