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Cut penalties for retiring early

By Jennie L. Phipps ·
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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Dr. Robert E. Pritchard
June 17, 2011 at 10:00 am

I am the author of the article and invite anyone who would like a copy to e-mail me at pritchard @ I will forward a copy to you. Thank you all for your interest.

Real close to 62 and planning on taking ss then
June 17, 2011 at 8:47 am

I think Pritchard is on to something - but he omits aspects of the current situation that make his points less important

If I draw immediately at 62, retire simultaneously, and don't have income above $14000 a year I will on average receive the same benefit if I do the same and wait until FRA of 66 to retire. The only aspect in play for me or the govmt is whether I beat or lose on the actuarial lifetime of 82 or so. It's a wash for the govmnt as they are playing the averages.

On the other hand, if I decide to consult or work in my field after 62 and earn big bucks to wipeout all SS payments during that period - the govment still does an actuarial number on my SS benefits at age 66 by recalculating the benefit for the extra period worked with pulled back SS payments. So the hit is nowhere near as bad as portrayed. If I still live the same actuarial age of 82 or so on average the payouts should come out much closer together overall.

Pritchard's approach would probably just result in SSA changing the adjustment formula to be used at FRA (66 or higher). What it would do is keep many more folks in their current jobs and employed as the income would be additional and current versus deferred.

The logic of posters like Homeless throw me. I have paid full freight for close to 40 years and SS income is a major part of my retirement planning. I realize part of payments went to cover more needy - but the part that is related to retirement income regardless of other income is important to my plans, part of the retirement "package" I was counting on, and should be available as promised for the significant tax I have paid through the years

June 17, 2011 at 2:00 am

Here's another. Full SS benefit age increases for us, but early reduced pension at 62 years has not. Eliminate early SS benefits, except for its intended purpose, disability and children. Life expectancy has increased, keep working.

Employers must be on board. I'm a 60yo female and my employer will not promote me because I'm too old and the employer wants to hire younger to lower salary costs. So what incentive do I have to continue working if I'm too old to promote, but not too old to pass on my knowledge to the younger employee. I don't want to take it with me, but 40 years of experience and knowledge is a terrible thing for a fortune 500 company to waste. You'd think big business would get tired of re-inventing the wheel every generation!

June 16, 2011 at 9:00 pm

Able To Work - I am 32 years old and have been working in my field since I was SIXTEEN years old. Which also means I have been paying into this system. If I have the ability to work I will do so for as long as I can and would not use Social Security until I absolutely have to.

I ABSOLUTELY believe that people should be able to take SS when the time comes, but that time should be at RETIREMENT. Someone that is making 75k/year at the same job they have always had, should not be drawing from SS at 62. This is why it won't even be an issue if ever retire, because there will be no money (that I have contributed). It is a RETIREMENT benefit.

I ALSO agree it is ridiculous that people that do not pay into it, still get to collect it...I'm not exactly sure where you got the impression that I do not pay into this system...Another stupid part? The "death benefit" of $250, that is meaningless to the individuals that receive it (won't cover much of the funeral expense) but it is a HUGE drain on the system when all put together. Another one, the man that gets married 4 times, with wives that never work a day. If he stays married to each of them long enough they ALL get to draw on HIS SS along with him!

The government "borrowed" the money and must pay it back...with what? OH MORE TAXES...that's the answer, right? All the government is doing is robbing Peter to pay they have all along. The money they borrowed was NEVER supposed to be touched. But some idiot along the way said, we could take a little bit if we promise to pay it back later...then everyone dipped their hands in.

I have a life...a FULL TIME JOB (same industry for 16 years and only with two companies) a husband that lost his job during the downturn and was out of work for TWO YEARS (NEVER TAKING A DIME FROM UNEMPLOYMENT), now he's back to work for HALF of what he made before JUST so we can keep food on the table for our two beautiful little girls because we NEVER looked to the government to give us food stamps or rent money. We lost our home and it was the hardest thing ever. It's been a tough life, BUT it's a life, nonetheless.

Lou Rose
June 16, 2011 at 4:33 pm

Working beyond the full retirement age (for us, age 66) should be a "Way To Go, Senior!" moment. For us, with no penalty this is allowing us to put in some serious savings $. A goal is cash savings for a year's expenses. We just need to get it to savings before adult kids have an emergency and ask nicely, not figuring out how to pay it back.
Saying no is a skill we really need to learn.
Any suggestions?

June 16, 2011 at 4:01 pm

He makes some very good points. Here's a few more. People of any age have a right to work as long as they are ready, willing and able. They are under no obligation to quit, in order to "make room" for someone who may or may not accept the position.
People who stay in the work force longer are happier and healthier than those who don't. They live an active life.
Social Security is not broke. The money was "borrowed" by the government, who must pay it back.
I would erase the penalty, however, keep in mind that there are still personal choices involved when considering when to start collecting.

Able to Work
June 16, 2011 at 3:09 pm

So Homeless, you think if you are able to work you should so people like you can draw the money we have paid into for years and we shouldn't get any of the benefits. You need to take a look at yourself. If you had worked for years and couldn't get what you paid into do you think you would feel the same??? NO! That is the problem! If I pay into the social security I should be able to draw from it when the time comes. People that don't pay into it should never receive the benefits because they haven't earned a dime of it. You reap what you sow!!! That is why our social security is running out of money now. Get a life!!!

shawn thomas
June 16, 2011 at 2:50 pm

look at this

June 16, 2011 at 1:27 pm

he should run for president.....

June 16, 2011 at 10:50 am

So let me get this straight...this guy says that we should let people that are totally capable of continuing to work ALSO collect social security? This is why the system is's this entitled think that got us in this mess. Social Security was meant to help low wage earners maintain dignity during retirement. Not to provide extra play money money to people who can still work and support themselves!

NOW we want people to stay in jobs and keep those jobs away from new people coming into the market and STILL pay them a RETIREMENT benefit. That is the most ridiculous thing I have ever heard!

This guy says there is no incentive for people to work past 62? Gee, how the ability to take care of yourself without feeding off the teet of the government? That sounds like a nice incentive to me. I chose to be a working mom because I like what I do and I have NO dreams of retiring early? At that point in my life my only concern is that I have some flexibility or earned time off to be able to travel once a year, but other than that I would have no problem working until the day I die!