The growth of women in the workforce is placing downward pressure on the amount of pre-retirement income that Social Security replaces.
A study by the Center for Retirement Research at Boston College examined replacement rates for the average worker and determined that a more accurate measurement of replacement rates is needed to target couples because they operate as a unit.
What the center found is that the amount of pre-retirement income replaced by Social Security depends on the labor force activity of both spouses. At the high end, couples with a non-working spouse get the replacement rate from the worker’s benefit and from a spousal benefit, which could replace about 60 percent of the couple’s pre-retirement income.
At the low end, couples with two working spouses and identical earnings get the same replacement rate as an individual worker, which is about 40 percent. In the middle, couples see their replacement rate fall as the lower earner’s wages rise, to somewhere between 43 and 46 percent.
The report’s authors also discovered that as women go to work, replacement rates decline. They have dropped from 47 percent for those born early in the Depression to 42 percent for Early Boomers. By the time Generation X retires, replacement rates are projected to fall by an additional 5 percentage points.
The increase in full retirement age also has contributed to falling replacement rates because people are expected to reach age 67 before they can claim full Social Security benefits. So even if households work longer than in the past, they may fall increasingly short of qualifying for full benefits because the delay is not sufficient to keep pace with the increase in the full retirement age, the report found.
The drop in replacement rates is good news for the Social Security trust fund, but from a household standpoint, the drop in replacement rates for couples will lead to a declining role for Social Security. People are living longer but many are still retiring in their early 60s, which means that more workers will have to rely on other sources of retirement income, the report concluded.