For the 20 percent of the population aged 50 to 79 with the lowest incomes, earning an extra $1,000 raises a household’s expected value of lifetime spending by just around $700, which translates into a 30 percent marginal net tax rate. Even an extra $10,000 of lifetime earnings means another roughly $6,000 in lifetime spending, and a 40 percent remaining lifetime net tax rate on those additional earnings.
Other financial tradeoffs or exchanges cited by the research team include:
- Medicare income limits, Social Security earnings test limits for those retiring before the current full retirement age of 66 and Social Security income tax thresholds.
- Increased premiums for Medicare Part B for retirees earning more money.
- Rising out-of-pocket healthcare costs through higher premiums, higher Medicare Part B co-payments and outpatient care not covered by Part B, as well as projected increases in prescription drug expenses.
- Implicit taxes linked to government benefits such as food stamps.
All this is set against a backdrop of an already grim financial picture for many baby boomers' golden years. Only 67 percent of them have any retirement account, and many of those have very low balances. Forty percent of boomers have no retirement savings at all. While Social Security was designed as a basic floor for retirees' living standards, it actually provides approximately 90 percent of more than a third of elderly households' income. Nearly two-thirds of older households rely on Social Security for at least half of their income.
Meanwhile, prospects of increased Social Security benefits to help boomers are dim. Social Security already is 32.2 percent underfunded, according to current actuarial projections.
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