Economic Report President

Box 4-2.—continuedmonth because of the earnings test, receive an actuarially fairincrease in benefits when they reach the NRA. Thus, benefits lostare recovered later. Moreover, earnings from age 62 up to the NRAare considered in the AIME and may well increase the benefit onereceives at the NRA. On the other hand, workers continue to paythe Social Security payroll tax, as well as income and otherpayroll taxes, as long as they work. From the NRA on, postponedbenefits are increased by only 5.5 percent per year (for personswho reach age 65 in 1998-99), which is less than actuarially fair.However, this adjustment for delayed retirement is being graduallyincreased, in a process that began in 1990 and will continue untilcohorts reaching the NRA in 2009 and after get an actuarially fair8 percent per year for postponing benefits, up to age 70.Those who discount future income at a higher rate than 8.3 percentmay also want to start taking their Social Security benefits early. Inparticular, they may have a strong preference for current over futureincome because they are unusually “present oriented” or risk averse.Also, those who want to receive their Social Security benefits beforethe NRA need not leave the labor force entirely to do so. They canreceive their full benefit as long as they keep their earnings under theexempt amount (see Box 4-2). However, part-time jobs are not alwaysChart 4-8 Net Labor Force Exit Rates of Men at Each AgeThe peak age at which men retire from the labor force has dropped from 65 to 62 inthe past three decades.Percent decline in labor force participation rate25201996-97 combined151051965-66 combined056 57 58 59 60 61 62 63 64 65 66 67 68 69 70AgeSource: Department of Labor (Bureau of Labor Statistics).144