Wharton Pension Research Council Working Papers
 

Document Type

Working Paper

Date of this Version

1-1-2006

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 commonlyused 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.

Working Paper Number

WP2006-06

Copyright/Permission Statement

All findings, interpretations, and conclusions of this paper represent the views of the author(s) and not those of the Wharton School or the Pension Research Council. Copyright 2006 © Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.

Acknowledgements

This research was conducted with support from the Social Security Administration via the Michigan Retirement Research Center at the University of Michigan, under subcontract to the University of Pennsylvania. Additional support was provided by the Pension Research Council, the Boettner Center for Pensions and Retirement Research, and the Huebner Foundation, all at The Wharton School of the University of Pennsylvania. The authors absolve their supporters from any errors and note that opinions are solely those of the authors and not of the institutions with which the authors are affiliated.

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Economics Commons

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Date Posted: 28 August 2019