Social Security's Declining Role

For baby boomers and younger generations of married couples, Social Security will not replace as much household income as it did for older generation. That's because of the rise of working women and the way benefits are calculated for married couples, according to a report by the Center for Retirement Research (CRR) at Boston College.

In the past, when most wives did not work, Social Security benefits replaced a larger portion of total household income because nonworking wives received a benefit check as well. The nonworking wife's benefit was equal to one-half of her husband's benefit. The CRR report provides an example: if the husband's benefit  replaced 40 percent of his earnings (his earnings = total household income), then the nonworking wife's benefit replaced another 20 percent of his earnings for a 60 percent replacement rate. What a deal!

Unfortunately, that deal has gone the way of the dodo bird. When both husband and wife are in the labor force, the wife's earnings boost household income. But if the wife's Social Security benefits replace 40 percent of her earnings and the husband's benefits replace 40 percent of his earnings, then Social Security replaces only 40 percent of the couple's total household income.

"The drop in replacement rates for couples will lead to a declining role for Social Security,"concludes the CRR report, warning that "retirees will have to rely increasingly on other sources of retirement income."

Source: Center for Retirement Research at Boston College, How Does Women Working Affect Social Security Replacement Rates?