Wednesday, June 06, 2018

Study Finds Women Retiring Early Creates Gender Gap in Social Security Wealth

The National Bureau of Economic Research has released a study showing that the the pattern of women tending to marry men who are older and then retiring at the same time as their husbands contributes to a substantial gender gap in Social Security wealth [SSW].

In "The Return to Work and Women's Employment Decisions" (NBER Working Paper No. 24429), Nicole Maestas reports that "the opportunity cost of retirement—-in terms of foregone potential earnings and accruals to Social Security wealth—-may be larger for married women than for their husbands," and that using the Health and Retirement Study (HRS), she finds "evidence that the returns to additional work beyond mid-life are greater for married women than for married men. The potential gain in Social Security wealth alone is enough to place married women on nearly equal footing with married men in terms of Social Security wealth at age 70."
For both female cohorts, real earnings increased until age 55 and began to decline at age 57. Men's earnings, on the other hand, continuously decreased from ages 51 to 61. In addition, women's earnings increased by 31 percent across cohorts, but men's earnings increased only 10 percent. So the gender earnings gap shrinks as individuals age into retirement.

For both cohorts, women were more likely than men to retire "early" — before age 62 — or move from full- to part-time employment. In the boomer cohort, 47 percent of women retired or reduced work early, but only 41 percent of men did so.

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When ranked by the amount of additional SSW they would receive if they worked to age 70, married women in the top quartile would gain an average of over $36,000, compared with only $1,300 for those in the bottom quartile. Despite these potentially significant differences in the financial consequences of early retirement, Maestas finds that the early retirement rate among women with a lot to gain from continued work is comparable to that for women with relatively little potential gain. "This suggests that individuals do not factor these potential gains into their employment decisions, and it raises the question of whether individuals are able to correctly assess the opportunity costs associated with reducing work effort before age 70."

Source: NBER Digest "Married Women Who Retire Early May Forfeit Social Security Wealth" (June 2018)

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