Social Security Replacement Rates for Alternative Earnings Benchmarks

22 Pages Posted: 19 Feb 2008  

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

John W. R. Phillips

National Institutes on Aging

Date Written: May 2006

Abstract

Social Security reform proposals are often presented in terms of their differential impacts on hypothetical or 'example' workers. Our work explores how different benchmarks produce different replacement rate outcomes. We use the Health and Retirement Study (HRS) to evaluate how Social Security benefit replacement rates differ for actual versus hypothetical earner profiles, and we examine whether these findings are sensitive to alternative definitions of replacement rates. We find that workers with the median HRS profile would be estimated to receive benefits worth 55% of lifetime average earnings, versus 48% for the SSA medium scaled profile. Since US policymakers tend to prefer a replacement rate measure tied to workers' own past earnings, using these metrics would yield higher replacement rates compared to commonly used scaled illustrative profiles. However, benchmarks that use population as opposed to individual earnings measures to compare individual worker benefits to pre-retirement consumption produce lower replacement rates for HRS versus hypothetical earners.

Suggested Citation

Mitchell, Olivia S. and Phillips, John W. R., Social Security Replacement Rates for Alternative Earnings Benchmarks (May 2006). Michigan Retirement Research Center Research Paper No. WP 2006-116. Available at SSRN: https://ssrn.com/abstract=1094839 or http://dx.doi.org/10.2139/ssrn.1094839

Olivia S. Mitchell (Contact Author)

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

John W. R. Phillips

National Institutes on Aging ( email )

Building 31, Room 5C27
31 Center Drive, MSC 2292
Bethesda, MD 20892
United States

Paper statistics

Downloads
67
Rank
279,034
Abstract Views
514