Retirement: Delaying It Brings Many Benefits
Romina Boccia /
Newscom
Too many healthy seniors retire early at a loss to their wealth and to society. Meanwhile, Social Security is in dire need of reform. Delaying the age of retirement for those able to continue working means a big income boost for seniors, less strain on Social Security, and more economic growth.
About 10,000 baby boomers retire every day in America. According to the Center for Retirement Research at Boston College, the average retirement age has gradually increased to 64 for men and to 62 for women since the mid-1990s. Yet life expectancy is nearly 79 years for most Americans. Many people choose to retire as soon as they are eligible for benefits, even if those benefits are reduced—as is the case with early retirement.
Someone choosing to retire at Social Security’s early retirement age of 62 who lives to 79 would spend nearly 17 years receiving benefits from the program. Healthy seniors could spend many of those years productively in the workplace for their own benefit and that of society.
Moreover, as more and more baby boomers are joining Social Security’s and Medicare’s benefit rolls, the labor force is growing at a slower pace. Already there are merely 2.3 workers for every retiree and this ratio will shrink even more, making the financing of Social Security’s benefits an increasing challenge.
As Eduardo Porter explains, there are many benefits from policies that encourage healthy people to stay in the workforce longer:
For instance, a study published several years ago by C. Eugene Steuerle, Barbara A. Butrica and Karen E. Smith of the Urban Institute found that working just one more year would increase retirees’ income in retirement by 9 percent. Working an additional five years would lift their incomes by 56 percent.
Retirees wouldn’t receive fewer Social Security benefits, on average, because their annual benefit would increase with each year they delayed retirement. Nonetheless, government finances would improve through increased income tax revenue.
What’s more, a growing cadre of older workers could counter to some extent the slowing growth of the labor supply…. The C.B.O. expects that slow growth in the labor supply will reduce our potential growth rate over the long term, to 2.25 percent a year, a full percentage point less than the average since 1950.
The Heritage Foundation plan for the U.S. budget recognizes the need for Social Security reform and the benefits from encouraging Americans to stay in the workforce longer. Saving the American Dream would adjust both the early and normal retirement age to reflect increases in longevity.
The normal retirement age should gradually rise to 68 for workers born in or after 1959 and the early retirement age should rise to 65 for workers born in or after 1964. Then, both should be indexed to increases in longevity. Those whose health won’t allow them to continue working up until those ages would have access to a reformed disability system until qualifying for Social Security’s regular benefit.
Additional incentives should be added to encourage those who are able to work even beyond their normal retirement age to do so at a gain to them. Under Saving the American Dream’s new flat tax system, when all payroll and excise taxes are lumped into one simple flat tax, a special annual tax deduction of $10,000—regardless of income level for seniors working beyond the normal retirement age—is included. Moreover, the Heritage tax-free savings plan would encourage and enable Americans to save more for their later years in life, promoting a better standard of living for America’s seniors.
Under today’s tax system, Heritage expert David John recommends waiving the payroll tax for those who work beyond the normal retirement age, meaning “older employees would not have to pay 6.2 percent of their pay in payroll taxes, and could use that exemption to increase their take-home pay in advance of retirement.” Similarly, employers would have added incentives to keep employees longer by not having to bear the 6.2 percent payroll expense.
Social Security reform is urgent and necessary. The Social Security trust fund will be depleted by 2033, threatening a 25 percent across-the-board cut to benefits. Already the program is running in the red—necessitating comprehensive reform—including delaying the age of retirement. Reforms should strengthen Social Security as a social safety net program while making the program affordable for current and future generations of working Americans. For details, see the Heritage plan.