Working for a Good Retirement

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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. Policies that encourage workers to delay retirement and increase labor supply could generate more gains to individuals, the retirement system, and the economy than other types of Social Security reforms. Drawing on the Urban Institute’s Dynamic Simulation of Income model (DYNASIM3), 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 their 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 worker’s retirement well-being. Lower-income workers, to the extent they can work longer, have the most to gain from their additional labor. Policy changes that encourage work at older ages will substantially improve both economic and personal wellbeing in the future.