Working for a Good Retirement

Mobile Share Email Facebook Twitter LinkedIn

Workers drain national resources in two ways when they retire – they begin collecting Social Security and Medicare benefits and they stop paying federal income and payroll taxes. Drawing on the Urban Institute’s Dynamic Simulation of Income model, this report examines how delaying retirement for non-disabled workers would affect individual retiree benefits, the solvency of the Social Security trust fund, and general revenues.

The results suggest that delaying retirement by itself does not generate enough additional revenue to make Social Security solvent by 2045. That is, even if everyone delayed retirement by five years, benefit cuts or supplementary funding sources will be necessary to achieve solvency. However, the size of the benefit cuts or tax increases could be minimized if individuals worked longer. This additional work also substantially increases workers’ retirement well-being. Lower-income workers, in particular, have the most to gain from their additional labor. Policy changes that encourage work at older ages will substantially improve both economic and personal well-being in the future.

A number of policy changes have already occurred that should encourage more work at older ages. These include the increase in the Social Security normal retirement age, the shift from defined benefit to defined contribution pensions, and the scaling back of retiree health insurance. However, these changes alone will probably not be enough. Additional options include indexing retirement age with rising life expectancy, changes to the Social Security benefit formula to decrease early benefits and increase delayed benefits, and eliminating the requirement that Medicare be secondary payer.