Furthermore, I suspect that only a very tiny number of retirees know that if they had waited past age 65 to draw benefits that they would be getting more. At present, those delaying retirement past the normal retirement age will get 7 percent more for each year that they wait until age 70. Future retirees will get 8 percent for each year that they delay drawing benefits past the normal retirement age, which is in the process of rising from 65 to 67 for those born in 1960 or later.
This delayed retirement credit can have a very dramatic effect on one's benefits. Those born between 1943 and 1954 will get 76 percent more each month if they retire at age 70 than if they retire at age 62. The former will be getting 32 percent more of the basic retirement benefit one qualifies for at the normal retirement age, the latter will get 25 percent less.
Early retirees suffer in another way, as well. Once one begins drawing benefits before the normal retirement age, there are restrictions on how much wage income one may earn without losing benefits. Next year, one can only earn $12,000 before losing benefits. And the reduction is severe. Benefits are cut by $1 for every $2 earned over the maximum allowed.
Until 2000, a similar rule applied to all retirees on Social Security below the age of 70. But Congress concluded that the de facto 33 percent marginal tax rate imposed by the earnings test was unfair and discouraged a significant amount of work, so the rule was abolished. Those above the normal retirement age may now earn as much as they want and still draw full benefits. However, an earnings test was left in place for early retirees.
Because the normal retirement age is rising to 67, this means that the earnings test will apply to more and more retirees in future years. If they take early retirement in the numbers we have seen and the test is unchanged, then we are going to see a massive withdrawal of older workers from the labor force beginning in 2008. The nation may not be able to afford it.
Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.
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