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

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Presentation on theme: "April Yanyuan Wu and Alicia H. Munnell (Center for Retirement Research at Boston College), Nadia Karamcheva (Urban Institute), and Patrick Purcell (Social."— Presentation transcript:

1 April Yanyuan Wu and Alicia H. Munnell (Center for Retirement Research at Boston College), Nadia Karamcheva (Urban Institute), and Patrick Purcell (Social Security Administration) 14 th Annual Retirement Research Consortium Conference Washington, DC August 3, 2012 How Does the Changing Role of Women Affect Social Security?

2 1 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

3 2 Changing role of women: earnings Ratio of Median Wifes to Husbands Lifetime Earnings Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.

4 3 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 programs finances? o Trends in replacement rates A broad range of cohorts, from Depression to Generation X By marital status and income distribution o Decompose differences into contributing factors o Estimate the impact of changes on Social Securitys finances 4

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 o Smallest among the never married o Largest for couples with husbands earnings in top tercile Factors explaining the drop in replacement rates o Increased labor supply and earnings: > 1/3 o Changing marital pattern: relatively small impact o Increased FRA and changing claiming behaviors: 1/3 The ratio of benefit to contribution has declined: 22 percent 5

7 Health and Retirement Study (HRS) o Original HRS ( ) o War Baby (WB, ) o Early Baby Boomers (EBB, ) Modeling Income in the Near Term (MINT) o Middle Baby Boomers (MBB, ) o Late Baby Boomers (LBB, ) o Generation X (GX, ) 6 Data

8 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 7 Methods

9 Changes in replacement rates: current retirees 8 Household type HRSWar BabyEarly Boomer Weighted average46%40%39% Never married45%38%42% Currently married44% 38% Widowed59%54%51% Divorced47%40%39% Estimated Replacement Rates, Household Level Source: Authors' calculations using the University of Michigan. Health and Retirement Study. Ann Arbor, MI.

10 9 Estimated replacement rates (median, single-earner households) HRSWar BabyEarly Boomer Husband's earnings Low72%79%76% Median54%49%51% High47%38%40% Estimated replacement rates (median, dual-earner households) HRSWar BabyEarly Boomer Husband's earnings Low51%44%46% Median42%36% High36%31%30% Changes in replacement rates: current retirees (contd) Source: Authors' calculations using the University of Michigan. Health and Retirement Study. Ann Arbor, MI.

11 Changes in replacement rates: projection 10 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 HRS War Baby Early Boomers Middle Boomers Late Boomers Generation Xers Weighted average50%48%45% 44%39% Never married47% 43%44% 40% Currently married47%45%42% 41%37%36% Widowed64%61%60%55%53%48%53% Divorced52%48%46% 44%40%41%

12 Explaining differences over time 11 Factors contributing to the changes over time: Labor force participation Marriage pattern And…changes in FRA and claiming behaviors

13 12 Comparison of replacement rates 12 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.

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

15 Explaining differences over time 14 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

16 Explaining differences over time (contd) 15 Percent of Actual Change Changes between HRS1 and GenX Actual changes in gap DemographicsClaiming behaviors Labor supply Spouses demographics Spouses claiming behaviors Spouses labor supply Unexplained Married0.11.7%23.1%25.5%0.3%18.2%28.2%3.0% Widowed0.27.3%26.0%55.9%11.2% Divorced0.10.0%50.2%46.7%2.9% Never married %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.

17 16 Impacts on Social Security Finances 16 HRS HRS War Baby Early boomers Middle boomers Late boomers Generation X All Never married Married Widowed Divorced 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.

18 17 Conclusions 17 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


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