Tax Policy Promotes "Early" Retirement

[REWahoo]

Selected quotes from a CBS MarketWatch.com article. *Always interesting to see how "early" and "retirement" are defined. *(If you are working are you really retired?)

Tax policy promotes early retirement
Few financial benefits in working late in life, study finds

By Robert Powell, CBS MarketWatch.com

BOSTON (CBS.MW) -- It has become widely accepted that many Americans will have to work part-time during "retirement" to maintain their living standards.

But a new study has found that taxes, direct and indirect, will eat up much of what those people might earn. In short, it won't pay to work after about age 66, because you'll take in after taxes as much from your pensions and Social Security as you would by working.

Encouraging work at older ages is worthwhile. and a critical policy goal for an aging society, according to the study by the Boston College Center for Retirement Research.

Butrica is calling on politicians to pass laws that provide incentives to work at older ages, including a payroll tax credit, indexing the normal retirement age to life expectancy, reducing benefits at younger ages and removing phased-retirement regulations.

At present, she says the implicit tax rate on work rises from 15 percent for a somewhat average 55-year-old male to 50 percent for some workers by age 70. Obviously, there's no point in working if you can earn as much sleeping afternoons away in a hammock as you can by making hammocks. Sounds perfectly reasonable to me.

What's more, Butrica says, delaying retirement has all sorts of additional benefits. Working longer increases economic productivity, generates additional payroll and income tax revenue, reduces the number of years in which people receive retirement benefits, and helps cover costs of retirement programs (Social Security) and other government spending. Plus, it can reduce the pressure to tax younger workers to support those in retirement. Anybody see any benefit for the delayed retiree here?

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"It will be hard to convince people to continue working at older ages. Why would someone keep working if they can make the same or more money by staying home."