Measuring Work Disincentives at Older Ages

Research Report

Measuring Work Disincentives at Older Ages

Abstract

The tax code, employee benefits, Social Security, and Medicare reduce the financial gains from working at older ages, discouraging older adults from remaining employed. This report computes the implicit tax on work, which indicates how much employees’ financial reward for working falls below compensation paid by employers. Simulations indicate that between ages 60 and 70, the median implicit tax rises from 14.6 percent to 29.9 percent of total compensation. Withdrawal requirements for retirement accounts, the forfeiture of Medicare benefits by older workers with employer health benefits, and the slowdown in the growth of future Social Security benefits drive these increases.

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