How Much Does Work Pay at Older Ages?

Damir Cosic
Richard Johnson, Dolan Consulting

Various features of the tax code, employee benefits, and the retirement system reduce the returns to work at older ages, discouraging some older adults from working. Using dynamic microsimulation techniques, this study estimates the implicit tax on work, indicating how much employees’ financial reward for working falls below compensation paid by employers, for a nationally representative sample of adults ages 60 to 70. Results show that the median implicit tax on work rises from 15.0 percent of total compensation at age 60 to 39.0 percent at age 65, 41.7 percent at age 67, and 46.4 percent at age 70. Medicare secondary payer rules, minimum withdrawal requirements for certain retirement accounts, and rules governing the accumulation of future Social Security benefits raise the implicit tax on work at older ages. Various policy changes could reduce work disincentives and promote employment by older adults.

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 Presented in Session 6. Health & Mortality & Aging