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Women's Changing Roles and Social Security

A new study finds that Social Security replaces less pre-retirement income than it did in the past, because of shifting trends in workforce and marriage

By Kerry Hannon

Social Security turned 77 this week, and Mitt Romney’s choice of running mate, Paul Ryan, has put the retirement program on the front burner as a campaign issue. So I’ve been reminded once again about Social Security’s frailty as a backstop for retirement income, especially for women in their 50s and 60s.

This point was driven home to me by a thought-provoking presentation — "How Does the Changing Role of Women Affect Social Security?" — at the recent annual Conference of the Retirement Research Consortium in Washington, D.C.

The study — by Alicia Munnell and April Yanyuan Wu of the Center for Retirement Research at Boston College; Nadia Karamcheva of the Urban Institute; and Patrick Purcell, a researcher at the Social Security Administration — examined how the growth of women in the workforce and evolving marital trends altered the percentage of pre-retirement income that Social Security replaces (a figure scholars call the Social Security replacement rate).

The study's findings are just the latest evidence that boomer women need to save diligently to supplement their Social Security income.

(MORE: When It Comes To Money, The Deck Is Stacked Against Women)

The researchers concluded that the changing role of women born between the 1930s and the 1970s has led to a “marked decrease” in the amount of pre-retirement income that Social Security replaces for Americans in general and women in particular. The drop in replacement rates will continue for future retirees, they say.

More specifically, the median replacement rate was 46 percent for the first group of American individuals receiving Social Security benefits and, according to the researchers, is expected to be 39 percent for recipients who are now between ages 47 and 52. The replacement rate has shrunk the most for married couples with husbands in the top-earning percentiles.

Among the reasons for the lower Social Security replacement rates: increases in the number of women who work and the amount they earn (employed women ages 57 to 66 earn 36 percent more per year than their pre-boomer counterparts did, in inflation-adjusted dollars); lower marriage rates; higher divorce rates; shorter marriages; and a higher percentage of women retirees who are either unmarried or married for a short time. Marriage comes into play because you can sometimes qualify for higher Social Security benefits as a spouse than you'd be eligible to receive based on your own earnings record; if you're divorced, you generally must be currently single and have been married for 10 years in order to qualify for benefits as a divorced spouse.

I admit my eyes get a little glassy when I try to wrap my head around what all this means, so I asked April Yanyuan Wu to explain the implications of the findings:

What's the main takeaway from the study?

"The declining role for Social Security," says Wu, "implies that retirees will have to rely increasingly on other sources of income." (Otherwise, let me add, you'll have to lower your expenses in retirement.)

What were the differences in the reduction of Social Security replacement rates for married couples and singles?

"The decline in replacement rates is modest for the never-married, but substantial for married, divorced and widowed households. The more that married women work, the more they earn their own Social Security benefits, which reduces their eligibility for spousal benefits and lowers their replacement rate."


What surprised you about the findings?

"We found that over one-third of the decline in replacement rates over time can be explained by the increased labor supply of women and women’s earning. While the marital pattern has changed dramatically over time, the impact of this factor is relatively small. This was a surprise to us."

One of the interesting conclusions is that, although the changing role of women has lowered replacement rates for beneficiaries, it has also helped make Social Security system financially stronger. Why is that?

"The increasing labor-force participation of women — particularly married women who are entitled to the larger of the spouse’s Social Security benefit or the benefit they could earn on their own — boosts the trust funds by substantially lowering the replacement rate for married couples. The reason is that working wives add substantially more to the couple’s pre-retirement earnings than they do to their Social Security benefits."

How to Retire More Comfortably

In light of the study, I asked Wu what boomer women who haven’t retired should do now. She offered two straightforward recommendations: Work longer and save more.

She specifically urged women in their 50s and 60s to take advantage of the “catch up” rules for 401(k) plans, which let participants 50 and older invest up to $5,500 more in 2012 than those under 50, with a maximum contribution of $22,500. (If you’re 50 or older, you can also invest an extra $1,000 in a traditional IRA or Roth IRA, boosting the regular $5,000 limit to $6,000.)

I have one more suggestion: Run your own retirement income projections. Studies have shown that people who estimate their future financial needs save more than those who don’t. And as Next Avenue’s money & security editor Richard Eisenberg wrote in another blog post, women need to embrace retirement planning.

Photogtaph of Kerry Hannon
Kerry Hannon is the author of Great Pajama Jobs: Your Complete Guide to Working From Home. She has covered personal finance, retirement and careers for The New York Times, Forbes, Money, U.S. News & World Report and USA Today, among others. She is the author of more than a dozen books including Never Too Old to Get Rich: The Entrepreneur's Guide to Starting a Business Mid-Life, Money Confidence: Really Smart Financial Moves for Newly Single Women and What's Next? Finding Your Passion and Your Dream Job in Your Forties, Fifties and Beyond. Her website is Follow her on Twitter @kerryhannon. Read More
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