11/12/2012 4:45 PM ET|
For a better retirement, work longer
Researchers take a look at a simple policy change that could reward people for staying on the job longer while making their retirement more comfortable.
Before politicians can fix Social Security, they need to ensure that older Americans feel more secure about their financial future thanks to the fruits of their own labor instead of any form of entitlement.
In September, a fascinating study done by economists affiliated with the University of Michigan Retirement Research Center may have outlined a way to do that.
The study was nonpartisan and apolitical, which is precisely why it makes so much sense that neither the Democrats nor the Republicans are likely to pick up this particular ball and run with it. But for those who are staring retirement in the face, the research has some interesting implications, even if Congress never uses it as a blueprint for doing the right thing.
Incentives now reward retiring
The basic concept that economists John Laitner and Dan Silverman set out to study was whether heightened longevity might lead to longer, more-productive work careers. While people are living longer -- and are generally seen as being capable of working longer -- "most people have opted to take most of that extra time they have as additional retirement rather than additional work," Laitner said.
With people living longer, it's harder for their retirement savings to last. Moreover, they're more vulnerable to swings in the market and economy; they're also potentially more dependent on entitlements and government support.
"Our worry was that maybe the tax system -- which taxes time spent at work but not time spent at leisure -- is biasing them toward choosing retirement for more than a proper share of that extra time," Laitner said in a recent interview.
Mind you, there is definitely a segment of the older population that wants to work but has been forced or "incentivized" out of jobs by employers looking to trim payroll and willing to rely on younger, less-experienced workers. It's not necessarily easy for a senior worker who wants to stay employed to keep a job.
But Laitner and Silverman, whose research was published in the Journal of Public Economics, simply wanted to know if there was some incentive that would convince senior workers to lengthen the working percentage of their lives in keeping with their greater longevity.
The incentive they came up with is compelling: a 10% pay raise.
Putting a little more in your wallet
For the study, that boost didn't come in the form of a government subsidy or an employer-borne handout. The idea was simply to eliminate Social Security payroll taxes starting when workers are 55 years old. As a result, take-home pay would jump 10.6%, and the average worker would stay on the job 1.5 years longer. During that time, older workers would continue paying income taxes; their only break would be on the payroll tariff.
The change would be paid for by raising payroll taxes slightly for workers who are younger and nowhere near retirement.
"Our idea was that we would have the Social Security system become vested at some late age -- say, 55 -- and prior to that we'd have the payroll tax be a little higher than it is now, but after 55 you'd be done, and the thing would be vested and you would not have to pay the payroll tax anymore," Laitner said.
"Our thought was you'd be paying a little higher tax early in your career when retirement is not an option," he added, "but we take the tax off late in your career when you are trying to decide when to retire."
Call it a targeted tax cut, aimed at convincing people to overcome biases against working longer.
"It's kind of a win-win situation," Laitner said. "The people would have an option where they could work longer if they choose to do so and get a better deal out of the system. . . . (I)f people work longer they would have more resources for retirement, but the federal government would be collecting income taxes for those extra years."
Another potential win is that not only would workers who are behind in amassing a retirement nest egg want to work longer, but they would also have more take-home pay to get their savings tanks filled before leaving the workforce.
The big winners in this would be people who want to work longer, as they would get to spend more time on the job without the payroll tax; the theoretical losers would be people who want to retire as early as possible, who don't really benefit from the years without a payroll tax.
If the point of seemingly every "reform" policy is to encourage additional work by rewarding it, this would qualify as a big step in the right direction.
That said, it's not happening any time soon, and most workers today will face their retirement decision without this kind of targeted tax action.
Still, the underlying question -- "What would make it worthwhile for me to work longer?" -- is something every worker should consider if he or she has the choice to continue employment. The decision should be examined from both a savings and income perspective, as well as how it best serves personal and financial needs.
Yes, additional incentives would be good, but if you really look at what your savings and income can support and worry that your future may be tight, that alone should be plenty of incentive to keep working toward a comfortable retirement, rather than hoping for the best.
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Incentive or not, I plan to stop paying social security between 55 and 59.
I've been planning this for years and years and that plan, despite the 2000 crash and the last recession is coming together just fine.
I like my job, but I love the idea of retirement.
With the job market the way it is these days, it makes sense to free up a job for the next generation willingly rather than be forced out. I don't need to overstay my welcome.
With 49% of soon-to-be-seniors ill prepared for retirement - this may be a viable option. I opted to put it away while I was able to work long crazy hours. Yeah, there's some luck that accompanies the planning, but without a plan, luck doesn't factor in as nicely.
OK, I am 63 now, plan to work till my 66th birthday. My job is not strenuous, I work for a great company (35 years coming up), and I really enjoy my job. If I work till 66 (just about 2.5 years more) I will be able to max out my SS, pension (yes, i still get one and no I do not work for the government) and start 401K disbursements. I worked hard for this, did not ever expect my spouse or children to take care of me in my "old" age. My health is good, aside from some arthritis, so this plan will be no problem for me. I totally realize that this is not an option for a lot of older people...I can't imagine doing any strenuous work even at my age now, let alone at 66. This plan took a lot of advance planning and saving...I feel bad for the people out there that did not or could not do that advance planning. It is really necessary and I am working on my kids to seriously consider it.
Another point...I have NO consumer debt, cars paid off, house paid off. Very good for peace of mind.
Another study preformed by professors and grad students. Do you suppose any of them have ever put in a steady 40 hour week? How about construction workers who work hard manual labor. Do you suppose they will want to work until they are 70? We are on a slippery slope here and we are being brainwashed into believing this later retirement B.S.
I will take my "entitlements" thank you. I payed in all my working life and I feel I should get them or my money back with interest. If these funds would have been left where it could not be raided by anyone with a bridge to build could get it we would be in fine shape.
Can I sue the Government for breach of contract? Hell no!! But they can screw me. With a smile on thier face.
I will draw as soon and as long as I can 'cause I AM ENTITLED.
At my current rate of saving, I could afford to retire at 50 if I didnt have to pay that extra 10.6% in to social security that I will never be able to get back. Nobody wants to work longer and you should only have to if you planned poorly for your own future. its not howmuch you make its how much you spend this has always been the problem,. and government can't seam to grasp the concept.
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