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Social Security Replacement Rates for Alternative Earnings Benchmarks

  • Olivia S. Mitchell

    (Wharton School, University of Pennsylvania)

  • John W.R. Phillips

    (National Institute of Aging)

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.

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File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp116.pdf
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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp116.

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Length: 22 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:mrr:papers:wp116
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  1. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2006. "Are Americans Saving "Optimally" for Retirement?," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 607-643, August.
  2. Josh O’Harra & John Sabelhaus & Michael Simpson, 2004. "Overview of the Congressional Budget Office Long-Term (CBOLT) Policy Simulation Model: Technical Paper 2004-01," Working Papers 15188, Congressional Budget Office.
  3. John F. Cogan & Olivia S. Mitchell, 2003. "Perspectives from the President's Commission on Social Security Reform," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 149-172, Spring.
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