EconPapers    
Economics at your fingertips  
 

Measuring and communicating Social Security earnings replacement rates

Andrew Biggs (), Sylvester Schieber and Gaobo Pang ()

AEI Economics Working Papers from American Enterprise Institute

Abstract: Financial advisors commonly use earnings replacement rates to assist workers in their retirement planning. Policymakers and analysts use them to gauge the adequacy of Social Security benefits and other retirement income in allowing retirees to maintain pre-retirement living standards. In recent years, the Social Security trustees regularly published replacement rates that have been widely interpreted as the extent to which Social Security benefits replace earnings of workers at various points in the lifetime earnings distribution. However, the trustees' replacement rates are calculated differently than those generally used for retirement planning purposes possibly leading to confusion among policymakers and others regarding how much of workers' earnings are replaced by Social Security and how much those workers need to save on their own for retirement. Financial planners calculate replacement rates by comparing an individual's retirement income to that same individual's pre-retirement earnings, generally earnings in the years immediately preceding retirement. The Social Security Administration, by contrast, effectively calculates replacement rates by comparing retiree incomes to the incomes of contemporaneous workers. This latter measure is often used in other countries, but differs both qualitatively and quantitatively from the more common replacement rate calculations used for financial planning purposes. We find that replacement rates calculated on a financial planning basis are generally higher than those published by the Social Security trustees and that Social Security benefits generally replace somewhat more of individual workers' earnings than the trustees' rates suggest.

Keywords: Social; Security (search for similar items in EconPapers)
JEL-codes: A (search for similar items in EconPapers)
Date: 2015-01
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.aei.org/publication/measuring-communica ... gs-replacement-rates (text/html)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aei:rpaper:826926

Access Statistics for this paper

More papers in AEI Economics Working Papers from American Enterprise Institute Contact information at EDIRC.
Bibliographic data for series maintained by Dave Adams, CIO ().

 
Page updated 2020-11-23
Handle: RePEc:aei:rpaper:826926