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June 2016, Number 16-9
CENTER FOR RETIREMENT RESEARCH
at Boston College

By Steven A. Sass*

The following is an excerpt with permission from the Center for Retirement Research at Boston College.

Introduction
Social Security aims to provide retirees a basic old-age income after a lifetime of work. Monthly benefits were designed to replace a greater share of the earnings of low-wage workers, who spend a greater share of their income on necessities than high-wage workers. Social Security likewise includes spousal and survivor benefits. These “family benefits” were designed for the standard family unit when the program was created in the 1930s – a married couple in which the husband was the breadwinner and the wife a homemaker.

The family unit today has changed dramatically in two important ways relevant to spousal and survivor benefit design. First, most married women have significant wage employment and earn Social Security benefits on their own earnings record. Second, many women have children but never marry, and divorce rates are high among those who do marry. This brief reviews studies by the Social Security Administration’s Retirement Research Consortium that assess the implications of these changing work and marriage patterns on Social Security’s effectiveness in providing families a basic old-age income.

The discussion proceeds as follows. The first section provides a primer on Social Security spousal and survivor benefits. The second section reviews the erosion of these benefits due to the increased employment of married women. The third section discusses how changing marital patterns have increased the share of families not covered by Social Security’s family benefits, potentially leaving them with insufficient incomes in retirement.

Social Security Family Benefits
Social Security spousal and survivor benefits guarantee the spouse with lower lifetime earnings a benefit based on the higher-earner’s record. Individuals who are divorced are entitled to these benefits only if the marriage lasted 10 years or more. While spousal and survivor benefits are not gender based, they typically go to women because women tend to work less and earn less than men, so, for simplicity, the spouse with lower earnings will be called the wife. The basic benefits are as follows:

  • Spousal benefits guarantee the wife a Primary Insurance Amount (PIA) – a benefit at her Full Retirement Age (FRA) – equal to half her husband’s PIA.
  • Survivor benefits guarantee a widow a benefit equal to her husband’s actual benefit.1

If a woman is eligible for a worker benefit based on her own earnings history that exceeds the spousal or survivor benefit, she will receive the larger amount. If her worker benefit is lower, then she is “topped up” to the level of the spousal or survivor benefit. The labor force activity of women has a significant effect on the couple’s replacement rate, which is the household’s total Social Security benefit as a percent-age of pre-retirement earnings. As women work, they increase the couple’s pre-retirement earnings more than their Social Security benefits, so the household’s replacement rate declines.

Table 1 illustrates how benefits change as the wife’s lifetime earnings rise relative to her husband’s lifetime earnings. The illustration assumes both spouses claim at the FRA and that the husband’s benefit replaces 40 percent of his pre-retirement earnings. The first column shows the traditional case where the wife has zero earnings and a full spousal benefit that boosts the household replacement rate to 60 percent. Between the first and second columns, the wife is “dually entitled” – entitled to a benefit based on her own earnings record and a spousal top-up based on her husband’s earnings record; thereafter her benefit is based solely on her own earnings record. The household replacement rate drops as the wife’s earnings rise relative to her husband’s earnings. Regardless of the wife’s earnings, the dollar amount of her survivor benefit remains unchanged. But it replaces a declining share of a couple’s combined benefits once she earns more than a third of what her husband earns.

Table 1. Illustration: Ratio of Wife’s-to-Husband’s Earnings and Effects on Household Replacement Rates and Survivor Benefits

Benefit measure Ratio of wife’s to husband’s earnings
0% 33% 67% 100 %
Household replacement rate 60 45 42 40
Survivor benefit as % of
couple’s benefit
67 67 57 50

Note: Assumes both spouses claim at the FRA and the husband’s benefit replaces 40 percent of pre-retirement earnings.
Source: Author’s calculations.

Members of the Social Security Retirement Research Consortium have conducted various studies on family benefit issues, which cover four general areas: 1) family benefit financial incentives, including the rising incentive for married men to delay claiming and the general lack of response to these incentives; 2) the distributional effects of Social Security family benefits; 3) the impact of the rising labor force participation of women on household replacement rates; and 4) the decline in marriage. This brief reviews the studies in the latter two areas: women’s labor force activity and marriage patterns. The specific focus is on the implications of these studies for Social Security’s ability to assure families a basic old-age income, and whether other family benefit designs could be more effective.

Working Wives and the Erosion of Family Benefits
As late as 1960, over 55 percent of women receiving Social Security retirement benefits collected only as a spousal or survivor, with their benefits based solely on their husband’s earnings record. But women now work outside the home nearly as much as men (see Figure 1a) and bring home incomes much closer to what men bring home (see Figure 1b). Because married women work more and earn more, they make a substantial contribution to the household’s preretirement income and enter retirement with more Social Security benefits based on their own earnings records.

Figure 1. Changes in Labor Force and Earnings Patterns by Sex, 1960 and 2010

a. Labor Force Participation Rates

Changes in Labor Force and Earnings Patterns by Sex 1960 and 2010

b. Women’s Earnings as a Percentage of Men’s Earnings

Changes in Labor Force and Earnings Patterns by Sex 1960 and 2010

Notes: Labor force participation rates are adjusted to the age structure of the population in 1960. Earnings are median annual earnings of full-time, full-year workers.
Sources: Szafran (2002); and U.S. Census Bureau (1961, 2011).

A study by April Yanyuan Wu, Nadia S. Karamcheva, Alicia H. Munnell, and Patrick Purcell, using the Social Security Administration’s Modeling Income in the Near Term (MINT) microsimulation model, analyzes the rise in the lifetime earnings of married women relative to the lifetime earnings of their husbands, and its effect on household Social Security benefits, by cohort. It finds a dramatic increase in the ratio of wife’s-to-husband’s lifetime earnings in the War Baby and Early Boomer cohorts that entered the labor force in the 1960s and 1970s (see Figure 2).

Figure 2. Median Ratio of Wife’s to Husband’s Lifetime Earning, by Birth Cohort

Median Ratio of Wife’s to Husband’s Lifetime Earning by Birth Cohort

Notes: Striped bars are projections. See endnote 2 for cohort definitions.
Source: Wu et al. (2013).

The increased employment of married women sharply reduced the contribution of spousal and survivor benefits as a source of household retirement incomes. Over half of all women born in the early years of the Depression, who became eligible for benefits in the mid-1990s, were entitled to a family benefit when they first claimed. In contrast, less than a third of Early Boomer women, who became eligible for benefits between 2010 and 2015, were so entitled, and the family benefits they received replaced a smaller share of their pre-retirement earnings. According to the study, this decline in family benefits was the main contributor to the decline in household Social Security replacement rates, which fell from 50 percent for the cohort born in the early years of the Depression to 45 percent for the War Baby and Early Boomer cohorts (see Figure 3).3

Figure 3. Median Household Social Security Replacement Rates, by Birth Cohort

Median Household Social Security Replacement Rates by Birth Cohort

Notes: Replacement rates are the household’s benefits divided by the household’s Average Indexed Monthly Earnings as calculated by the Social Security Administration. Striped bars are projections. See endnote 2 for cohort definitions.
Source: Wu et al. (2013).

The study projects another significant jump in the ratio of wife’s-to-husband’s lifetime earnings for GenX couples, who will become eligible for benefits after 2028. It also projects a further decline in household Social Security replacement rates, to 39 percent of pre-retirement earnings. However, it attributes essentially none of this projected reduction in replacement rates to the rising ratio of wife’s-to-husband’s earnings. Therefore, the effect of the rising employment of women on Social Security spousal benefits and, thereby, replacement rates at first claiming, has largely played out.

The same is not true for survivor benefits. Most GenX wives will outlive their husbands and collect a survivor benefit when widowed. Barbara A. Butrica and Karen E. Smith, using the MINT microsimulation model, project that two-thirds of GenX wives will earn less than their husbands and be entitled to a survivor benefit, down from 82 percent of War Baby widows.4

Not surprisingly, overall, family benefits account for a much smaller percentage of Social Security outlays today than they did in the past (see Figure 4). Outlays have fallen much more for spousal than for survivor benefits. Most wives still get a survivor benefit if widowed, and survivor benefits disproportionately go to women in older cohorts who did not have significant employment records. But as older widows die and future widows have more substantial worker benefits, family benefits will likely account for an even smaller share of Social Security outlays.

Figure 4.  Spousal and Survivor Benefits as a Percentage of Total Benefits Paid to Retired Workers, Spouses, and Survivors, 1960-2013

Spousal and Survivor Benefits as a Percentage of Total Benefits Paid to Retired Workers Spouses and Survivors 1960-2013

Source: U.S. Social Security Administration (2015).

In sum, the dramatic rise in the employment of married women has diminished the importance of spousal and survivor benefits. Correspondingly, it has led to a significant decline in family benefits as a source of retirement income and as a share of Social Security outlays.

Growth of Single Mothers with Inadequate Benefits
As the employment of married women shot up in Baby Boom cohorts, so did the incidence of divorce and nonmarital births. This trend sharply increased the percentage of families headed by single mothers, which Social Security spousal and survivor benefits were not designed to serve. Data provided by Butrica and Smith show a sharp increase in the share of retired Boomers and GenX mothers who will be “never married” when they reach age 70, with just a slight change in the share who will be divorced from a marriage of less than 10 years (see Figure 5).

Figure 5. Percentage of Mothers Age 70 Projected to Be Never Married or Married Less Than 10 Years, by Birth Cohort

Percentage of Mothers Age 70 Projected to Be Never Married or Married Less Than 10 Years by Birth Cohort

Notes: Never-married includes single women and women in an unmarried couple. See endnote 5 for cohort definitions.
Source: Unpublished data provided by Barbara Butrica, based on research in Butrica and Smith (2012b).

Even more than for mothers in traditional two-parent families, child-rearing responsibilities limit the time that divorced and unmarried mothers spend in the labor market, impede their advancement to better-paying jobs, and thereby reduce their ability to earn an adequate Social Security benefit. But aside from divorced women whose marriages lasted at least 10 years, their benefit is only based on their own earnings record.

While widows today are the largest group of the elderly in poverty, elderly divorced and never-married women have higher poverty rates (see Figure 6). In part, the reason is that divorce rates and births to unmarried mothers are especially high among groups that tend to have low lifetime earnings and retirement incomes. But it is also due to the fact that most of these women are mothers, and child-rearing responsibilities impede their ability to earn Social Security retirement benefits. A study by Richard W. Johnson and Melissa M. Favreault finds that women ages 65-74 who spent at least 10 years as a single mother were 55 percent more likely to be poor than continuously married mothers of similar education and ethnicity.6

Figure 6. Poverty Rates of Women Ages 65 and Over by Marital Status, 2012

Poverty Rates of Women Ages 65 and Over by Marital Status 2012

Source: U.S. Social Security Administration (2015).

Conclusion
Social Security spousal and survivor benefits were designed to provide a basic old-age income to families in which the wife had little or no wage employment. Today, very few wives fit this mold, which has diminished the importance of Social Security family benefits as a source of retirement income. At the same time, changing marital patterns have reduced the program’s ability to help a large number of divorced and unmarried mothers whose labor market opportunities are constrained by their caregiving responsibilities. Altering Social Security to address these concerns would need to overcome significant political and administrative challenges. But it is worth considering whether other designs would more effectively provide today’s families a basic old-age income after a lifetime of work.

* Steven A. Sass is a research economist at the Center for Retirement Research at Boston College.

Endnotes

1 Spousal and survivor benefit amounts are reduced if they are claimed prior to the recipient’s FRA. Spousal benefits are also available only when the husband has claimed. When first introduced in 1939, the survivor’s benefit provided a widow with 75 percent of the husband’s PIA. It was raised to 82.5 percent in 1961 and 100 percent in 1972.

2 Cohort birth years are: Early Depression (1931-35), Late Depression (1936-41), War Babies (1942-47), Early Boomers (1948-53), Middle Boomers (1954-59), Late Boomers (1960-65), and Generation X (1966-75).

3 The study finds the increased employment of married women reduced the average replacement rate for all U.S. households, whether married or not, by 4 percentage points from the Early Depression to the Early Boomer cohort. This reduction in replacement rates has helped Social Security’s solvency (see Munnell, Sanzenbacher, and Soto 2007).

4 Butrica and Smith (2012a).

5 These cohort birth years differ somewhat from the birth years in other studies cited in this brief. The birth years here are: War Babies (1936-45), Boomers (1946-65), and Generation X (1966-78).

6 Johnson and Favreault (2004).

References

Butrica, Barbara A. and Karen E. Smith. 2012a. “The Impact of Changes in Couples’ Earnings on Married Women Social Security Benefits.” Social Security Bulletin 72(1): 1-9.

Butrica, Barbara A. and Karen E. Smith. 2012b. “The Retirement Prospects of Divorced Women.” Social Security Bulletin 72(1): 11-22.

Favreault, Melissa M. and C. Eugene Steuerle. 2007. “Social Security Spouse and Survivor Benefits for the Modern Family.” Working Paper 2007-7. Chestnut Hill, MA: Center for Retirement Research at Boston College.

Forster, Michael and Horacio Levy. 2013. The OECD Approach to Measure and Monitor Income Poverty Across Countries.” Working Paper 17. n.p.: United Nations Economic Commission for Europe: Conference of European Statisticians.

Gustman, Alan L., Thomas L. Steinmeier, and Nahid Tabatabai. 2013. “Redistribution Under the Social Security Benefit Formula at the Individual and Household Levels, 1992 and 2004.” Journal of Pension Economics and Finance 12(1): 1-27.

Johnson, Richard W. and Melissa M. Favreault. 2004. “Economic Status in Later Life Among Women Who Raised Children Outside of Marriage.” Journal of Gerontology 59B(6): S315–S323.

Munnell, Alicia H., Geoffrey Sanzenbacher, and Mauricio Soto. 2007. “Working Wives Reduce Social Security Replacement Rates.” Issue in Brief 7-15. Chestnut Hill, MA: Center for Retirement Research at Boston College.

Szafran, Robert F. 2002. “Age-adjusted Labor Force Participation Rates, 1960-2045.” Monthly Labor Review 125:25-38.

U.S. Census Bureau. Current Population Survey, Annual Social and Economic Supplement, 1961 and 2011. Washington, DC.

U.S. Social Security Administration. 2015. Annual Statistical Supplement to the Social Security Bulletin, 2014. Washington, DC.

Wu, April Yanyuan, Nadia S. Karamcheva, Alicia H. Munnell, and Patrick Purcell. 2013. “How Do Trends in Women’s Labor Force Activity and Marriage  Patterns Affect Social Security Replacement Rates?” Social Security Bulletin 73(4): 1-24.

About the Center
The mission of the Center for Retirement Research at Boston College is to produce first-class research and educational tools and forge a strong link between the academic community and decision-makers in the public and private sectors around an issue of critical importance to the nation’s future. To achieve this mission, the Center sponsors a wide variety of research projects, transmits new findings to a broad audience, trains new scholars, and broadens access to valuable data sources. Since its inception in 1998, the Center has established a reputation as an authoritative source of information on all major aspects of the retirement income debate.

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© 2016, by Trustees of Boston College, Center for Retirement Research. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that the authors is identified and full credit, including copyright notice, is given to Trustees of Boston College, Center for Retirement Research.

The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The opinions and conclusions expressed are solely those of the author and do not represent the opinions or policy of SSA or any agency of the federal government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.