Featured Research

from universities, journals, and other organizations

Why retire later?

Date:
August 28, 2012
Source:
University of Michigan
Summary:
What if every US worker got an automatic 10 percent pay raise at age 55? According to a new study, most people would work quite a bit longer to enjoy the extra income before they retired.

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 before they retired, to enjoy the extra income.

By eliminating social security payroll taxes starting when workers are 55-years-old, the study shows that people's 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," says 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. Bureau of Labor Statistics, Laitner and Silverman explore how tax cuts targeted at older workers would affect the likelihood 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," says Silverman.

Workers would need to pay about one percent higher payroll taxes a year until age 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 Federal income tax, 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 extra income. 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," says Laitner. "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 work by rewarding it."


Story Source:

The above story is based on materials provided by University of Michigan. The original article was written by Diane Swanbrow. Note: Materials may be edited for content and length.


Journal Reference:

  1. John Laitner, Dan Silverman. Consumption, retirement and social security: Evaluating the efficiency of reform that encourages longer careers. Journal of Public Economics, 2012; 96 (7-8): 615 DOI: 10.1016/j.jpubeco.2012.02.005

Cite This Page:

University of Michigan. "Why retire later?." ScienceDaily. ScienceDaily, 28 August 2012. <www.sciencedaily.com/releases/2012/08/120828143317.htm>.
University of Michigan. (2012, August 28). Why retire later?. ScienceDaily. Retrieved September 23, 2014 from www.sciencedaily.com/releases/2012/08/120828143317.htm
University of Michigan. "Why retire later?." ScienceDaily. www.sciencedaily.com/releases/2012/08/120828143317.htm (accessed September 23, 2014).

Share This



More Science & Society News

Tuesday, September 23, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Liberia Pleads for Help to Fight Ebola

Liberia Pleads for Help to Fight Ebola

AP (Sep. 22, 2014) Liberia's finance minister is urging the international community to quickly follow through on pledges of cash to battle Ebola. Bodies are piling up in the capital Monrovia as the nation awaits more help. (Sept. 22) Video provided by AP
Powered by NewsLook.com
Hundreds of Thousands Hit NYC Streets to Protest Climate Change

Hundreds of Thousands Hit NYC Streets to Protest Climate Change

AFP (Sep. 22, 2014) Celebrities, political leaders and the masses rallied in New York and across the globe demanding urgent action on climate change, with organizers saying 600,000 people hit the streets. Duration: 01:19 Video provided by AFP
Powered by NewsLook.com
Company Copies Keys From Photos

Company Copies Keys From Photos

Newsy (Sep. 22, 2014) A new company allows customers to make copies of keys by simply uploading a couple of photos. But could it also be great for thieves? Video provided by Newsy
Powered by NewsLook.com
Raw: Protesters Stage Wall Street Climate Sit-in

Raw: Protesters Stage Wall Street Climate Sit-in

AP (Sep. 22, 2014) A day after over 100,000 people marched against climate change, more than 1,000 activists blocked parts of Manhattan's financial district. Over 100 people, including a person wearing a white polar bear suit, were arrested Monday night. (Sept. 22) Video provided by AP
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:

Strange & Offbeat Stories


Science & Society

Business & Industry

Education & Learning

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins