Social Security and Total Replacement Rates in Disability and Retirement

TitleSocial Security and Total Replacement Rates in Disability and Retirement
Publication TypeReport
Year of Publication2017
AuthorsKhan, MR, Rutledge, MS, Sanzenbacher, GT
Series TitleWorking Papers
Document NumberWP#2017-6
Date Published05/2017
InstitutionCenter for Retirement Research at Boston College
CityChestnut Hill, MA
KeywordsConsumption and Savings, Disabilities, Retirement Planning and Satisfaction, Social Security

Social Security provides higher replacement rates to disability insurance beneficiaries than retired beneficiaries. This fact reflects two factors: 1) Disability Insurance (SSDI) beneficiaries have lower career earnings, and Social Security benefits are progressive; and 2) SSDI benefits are not reduced for claiming early. This project uses the 1992-2010 waves of the Health and Retirement Study (HRS) linked to Social Security Administration earnings records to decompose the differences between the Social Security replacement rates for retired worker and SSDI beneficiaries into these two factors. The project also examines how the total replacement rate – which accounts for other sources of income in addition to Social Security – differs between retirees and SSDI beneficiaries to capture the difference in overall retirement security between the two groups. The results indicate that about half of the 10-percentage-point advantage in Social Security replacement rates for SSDI beneficiaries is due to the actuarial adjustment applied to retirement benefits, implying that career earnings are not that different between retired workers and SSDI beneficiaries. But total replacement rates are substantially lower for SSDI beneficiaries, which indicates that, despite Social Security’s vital role in providing a reliable income source, SSDI beneficiaries have much lower post-career well-being than retired workers.

Citation Key9140