Early Retirement

Policy Backgrounder #162 - Work and Retirement

In 2006, the first of 77 million baby boomers reached age 60. In two years they will be eligible for early retirement benefits from Social Security. In five years they will be eligible for Medicare. As they retire, the boomers will stop paying taxes to fund America's elderly entitlement programs and begin collecting benefits instead. Over the next three decades, the number of retirees will double. However, due to declining fertility rates, the number of workers contributing to the system will fall from three for each retiree receiving benefits to two for each retiree. This will place a severe strain on working Americans to pay promised benefits to the elderly.

This paper examines several ways to increase the labor supply of older Americans and update Social Security to keep pace with changing life expectancies and labor market conditions. The reforms would give seniors greater freedom and flexibility to time their retirement, provide employers with incentives to retain older workers and increase incentives for older Americans to stay in the workforce longer.