Should People Work Longer, and Will They?

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Abstract

Older adults' employment is attracting attention as many baby boomers approach traditional retirement ages. This fact sheet examines the benefits of working longer, the characteristics of today's older workers, and recent changes in older Americans' labor supply.

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Introduction

What Are the Benefits of Working Longer?

Choosing when to retire is a crucial decision for workers. Working longer increases lifetime earnings,
Social Security and employer-sponsored pension credits, and other savings, and shortens the period over
which retirement savings must be spread.

• On average, working an additional year increases annual retirement income about 9 percent (figure 1).
  
• Working an additional five years boosts annual retirement income about 56 percent.
  
• The impact is even larger for people at the lower end of the income distribution.

Boosting labor supply at older ages also increases government tax revenue.

• The government would raise about $180 billion in additional tax revenue in 2045 (measured in
  2006 dollars) if all workers delayed retirement by one year, reducing the unified federal deficit by
  an amount equal to 28 percent of the Social Security deficit (Butrica, Smith, and Steuerle 2006).
• Additional tax revenue in 2045 raised by delaying retirement 5 years would exceed $1 trillion,
  more than 150 percent of the Social Security deficit.

Working longer may also improve emotional well-being and physical health.

• Because work is crucial to many workers’ personal identities, retirement can lead to a partial loss
  of identity, especially for those who retire abruptly.
• Work promotes social integration and social support.
• Staying active may promote physical health.

(End of excerpt. The entire paper is available in PDF format.)

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The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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