Social Security Replacement Rates for Alternative Earnings Benchmarks

TitleSocial Security Replacement Rates for Alternative Earnings Benchmarks
Publication TypeReport
Year of Publication2006
AuthorsPhillips, JWR, Mitchell, OS
Series TitlePension Research Council Working Paper
Document NumberWP2006-06
InstitutionThe Wharton School, University of Pennsylvania
CityPhiladelphia, PA
Call Numberwp_2006/MRRCwp116.pdf
KeywordsPublic Policy, Social Security

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.

Endnote Keywords

Social Security/POLICY

Endnote ID


Citation Key5651