WP#2004-30
Abstract
Encouraging work at older ages is a critical policy goal for an aging society, but many features of the current system of benefits and taxes provide strong work disincentives. The implicit tax rate on work increases rapidly at older ages, approaching 50 percent for some workers by age 70. In addition, by age 65 people can typically receive nearly as much in retirement as they can by working. If older Americans could overcome these barriers and delay retirement, they could substantially improve their economic well-being at older ages. For example, many people could increase their annual consumption at older ages by more than 25 percent by simply retiring at age 67 instead of age 62.
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Barbara A. Butrica is a Senior Research Associate in the Income and Benefits Policy Center at The Urban Institute. Richard W. Johnson is a Senior Research Associate at The Urban Institute. Karen Smith is a Senior Research Associate at The Urban Institute. Eugene Steuerle is a Senior Fellow at the Urban Institute and the author of a weekly column, "Economic Perspectives" for Tax Notes magazine. The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) to the Center for Retirement Research at Boston College (CRR). The opinions and conclusions are solely those of the authors and should not be construed as representing the opinions or policy of SSA or any agency of the Federal Government or the CRR. The authors thank Len Burman and especially Adeel Saleem for their help with computing tax burdens.
