Why retire later? Study shows how to encourage longer careers

Aug 28, 2012 by Diane Swanbrow
Why retire later? Study shows how to encourage longer careers

(Phys.org)—What if every U.S. worker got an automatic 10 percent pay raise at age 55? According to a new University of Michigan study, most people would work quite a bit longer to enjoy the extra income before they retired.

By eliminating social security payroll taxes starting when workers are 55-years old, the study shows that take-home pay would jump by 10.6 percent and they would work 1.5 years longer on average, paying more income taxes and helping to reduce the Federal deficit.

"People are living longer, healthier lives, and so far have opted to take most of that extra time as additional retirement rather than work," said U-M economist John Laitner, who conducted the analysis with U-M economist Dan Silverman."We are proposing a way of responding to this situation through targeted tax-rate changes that would reward older workers for staying on the job and also benefit the economy as a whole."

Both Laitner and Silverman are affiliated with the U-M Retirement Research Center, based at the U-M Institute for Social Research (ISR). Their analysis appears in the current (August 2012) issue of The Journal of Public Economics.

Using data from the ISR Health and Retirement Study and from the Consumer Expenditure Survey conducted by the U.S. , Laitner and Silverman explore how tax cuts targeted at would affect the of working longer and the size of the federal deficit.

"Our idea is to lower the taxes on an individual precisely at the time of life when people are making decisions about whether to work longer or retire," Silverman said.

Workers would need to pay about one percent higher a year until 55 in order for the Social Security system to break even, the researchers show. This would mean that over their lifetimes, households would pay about $15,000 more in , providing welcome reductions in the Federal deficit.

And workers age 55 and over would see their after-tax earnings increase by a healthy 10.6 percent – inducing them to work longer and enjoy the . Work years beyond age 54 would not affect benefits, and as in the current system, workers could claim benefits as early as age 62 although waiting until full retirement age would continue to be rewarded with higher benefit levels.

"Not everyone would benefit," Laitner said. "Households with a strong preference for very early retirement would pay the slightly higher payroll tax before age 55, but leave the labor force before gaining much from the elimination of the payroll tax after that. Late retirees would, by the same token, be big winners. And the point of the reform, after all, is to encourage by rewarding it."

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More information: www.sciencedirect.com/science/… ii/S0047272712000187

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User comments : 8

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mysticfree
1 / 5 (2) Aug 28, 2012
I wonder if government has enough wasteful tax policies and greedy bureaucrats to keep this article from becoming a reality?
rwinners
3 / 5 (2) Aug 28, 2012
"By eliminating social security payroll taxes starting when workers are 55-years old, the study shows that take-home pay would jump by 10.6 percent and they would work 1.5 years longer on average, paying more income taxes and helping to reduce the Federal deficit."

Ah yes! Let's reduce that deficit by working a couple of years longer. Lets save the filthy rich from covering their expenses... don't you know? We exist to protect and serve those who control the wealth on this planet.

rwinners
5 / 5 (1) Aug 28, 2012
"People are living longer, healthier lives, and so far have opted to take most of that extra time as additional retirement rather than work," said U-M economist John Laitner, who conducted the analysis with U-M economist Dan Silverman."We are proposing a way of responding to this situation through targeted tax-rate changes that would reward older workers for staying on the job and also benefit the economy as a whole."

Geez, get real. The US economy is worker flush and job poor. This is not going to change as long as production can be done in foreign lands at a greater profit.
We need to allow older people to retire and live their lives in security and comfort... all the while providing room to advance for the younger of us.
rwinners
3 / 5 (2) Aug 28, 2012
Oh... the deficit? The United States of America could reach fiscal equilibrium simply by eliminating the US Military/Industrial complex.
Sure, 1M or so US military personnel would loose their jobs.. but that's what unemployment insurance is for....
The scoundrels who profit from war and pestilence would fare worse... unless they have already diversified into less violent industries. I mean, the drug lords can do it, why not industry?
Vendicar_Decarian
1 / 5 (1) Aug 29, 2012
Doing so immediately would not even half the deficit because doing so would push the U.S. into a decades long depression.

Reducing military expenditures to zero over time would reduce the yearly deficit by roughly half.

"Oh... the deficit? The United States of America could reach fiscal equilibrium simply by eliminating the US Military/Industrial complex." - Rwinners

Contrary to the childishly simplistic Republican Delusion, the U.S. debt crisis can not be solved strictly by budget cuts.
rwinners
not rated yet Aug 29, 2012
Vendicar_Decarian
not rated yet Aug 29, 2012
@rwinners

Your table is inflation adjusted by increasing the apparent amount spent to adjust for the fact that 1960's dollars are worth more than 2012 dollars.

To be able to make a valid comparison to the National Deficit you need to adjust the deficit in the exact same manner.

Please do so and get back to us.
Squirrel
not rated yet Aug 29, 2012
Testosterone is the problem--it declines in men markedly after 50 resulting in a loss of muscle mass. This means men that do labor jobs tend to retire earlier or take on lower paying less physically demanding work.

So this tax change will penalize those exert muscle rather than brain for a living--fine for the middle classes but not so good for the beleaguered working class male.

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