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Cut penalties for retiring early

By Jennie L. Phipps · Bankrate.com
Wednesday, June 15, 2011
Posted: 2 pm ET

Here's how to make a boomer happy. Let him or her celebrate a 62nd birthday, draw Social Security and still keep working at full pay.

Unfortunately, the system doesn't work that way. Today, people who are between 62 and full retirement age -- 65 or 66, depending on their age -- can claim Social Security, but if they earn more than about $14,000, they have to pay back $1 for every $2 that they earn until they reach $32,000 and then they lose all of their Social Security.

But Robert Pritchard, a retired professor of finance at Rowan University in New Jersey, thinks that approach is all wrong. He wrote a piece for the June issue of the Journal of Applied Business Research on why it makes economic sense to eliminate the barriers to working and simultaneously collecting Social Security.

Pritchard, who will turn 70 shortly, points out that there is little retirement planning incentive to keep working after age 62, which means that many people who could continue to effectively contribute to society hang up their work boots and live off Social Security, pensions, and savings earlier than they might if there was a good reason to keep working. The net effect of that is unnecessary pressure on these resources, including rising interest when retirees sell bonds and declining stock values when they sell stocks.

If people could collect Social Security and work without penalty, they would continue to pay income taxes and they would continue to pay into the Social Security system while their employers would continue to do the same. The amount a person and his or her employer paid into the system would almost certainly be greater than the amount that he or she was receiving. "The government would be way ahead," Pritchard says.

He pooh-poohs the argument that encouraging people to retire early provides jobs for younger people. "That's a fallacious argument," he says. "It just isn't true. If you keep older people working and they keep buying and demanding goods and services, that is going to provide more opportunity for young people."

Pritchard is probably right about all of this, but I'm afraid it is going to be a tough sell in Washington.

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16 Comments
Fuzzy Math
August 02, 2011 at 3:11 pm

The author claims the amount paid into SS by the employee and employer would be greater than the amount amount received. No way! Assume a $50,000 annual salary. Employee and employer contribution about 12% combined equal $6000 per year in contributions. This person would probably collect about $20,000 per year in SS benefits. Absolutely silly to say it would pay for itself.

Barbara Goodwin
June 24, 2011 at 2:27 am

Help me out...I read, sometime ago, about our governments
desire to acquire our 401K's and IRA's thru a mandatory Annuity.
This is supposed to appeal to us, "with the uncertainity of the
financial markets and the scary economy" we would get a small, regular check for this handover....Is this idea getting any traction in government? Sounds like robbery to me!!

Homeless
June 17, 2011 at 1:40 pm

Why does everyone think I don't want them to collect their money??

If you are taking it as your retirment benefit and not making over the income threshhold to be penalized than that is exactly what it's for and I have no issue.

If you make big bucks consulting (I HOPE YOU DO FOR YOUR BENEFIT!!) and ending having to return all the money anyway, what is the point? Then you could effectively wait until FRA and your situation is the same.

What this article is saying is you should be able to make those big bucks AND take your SSI without any penalty. So an extra four years of people drawing on it even when they don't need to...THAT would be a drain on the system. The way it is set up now is to try to be less of a drain. (Not that it will help).

I HAVE BEEN PAYING INTO SS WITH MY TAX DOLLARS FOR 16 YEARS, I HOPE THAT THE FUNDS WILL BE AVAILABLE FOR ME SOMEDAY, BUT I DOUBT IT. ALSO IN A GENERATION THAT HAS NO PENSIONS!! SO I HAVE TO SAVE FOR MYSELF. SADLY, I DON'T HAVE ANY FREE CASH TO DO SO RIGHT NOW...SOOOOO I WILL PROBABLY WORK UNTIL I DROP DEAD AT MY DESK!