Measuring Income From Social Security

Authors Alicia Munnell and Mauricio Soto concluded that the median replacement rate social security provides for newly retired worker beneficiaries is 42% of pre-retirement income. This conclusion was coincidentally the same as the findings of the Social Security Administration.

In addition, the authors found that the replacement rate for a female was 52%, compared to 37% for males, due to their different earnings histories.

When adjusting data to reflect combined household retirement income replacement rates, the brief states that Social Security on average provides a 44% pre-retirement income replacement rate for both individuals and couples. However, the replacement rate for single women households was 49%, compared to 39% for single men, due to earnings differences. Furthermore, the replacement rate for single women was lower than for all women (52%) since single women tend to earn more when working to support their households.

The authors note that the replacement rate would be higher if people waited to retire at Social Security’s extended retirement ages of 66 and 67. They also point out that future retirees will pay a premium for Medicare and will see an increasing portion of their benefit subject to taxation.

The authors used the Health and Retirement Study to calculate replacement rates. The study is a nationally-representative data set that began in 1992 with about 12,650 individuals from about 7,600 households. The original survey interviewed people age 51-61 and their spouses (regardless of age), and it is re-administered every two years.

The document can be viewed at http://www.bc.edu/centers/crr/issues/ib_36.pdf .