Anonymous asked in Social ScienceEconomics · 9 years ago

economics homework - social security?

Hey i've been working on my economics homework all day and i've been stuck on two questions

How does the Social Security program affect people's incentive to save

while working in their chosen career from age 18-67?


When an individual is over 67 and is collecting social security, how does their reduction in benefits associated with continuing to work affect one's incentive to work past age 67?

we have learned in class about social security and such but i just don't understand the concept if anyone has any ideas on how to answer these questions it would be a lot of help

3 Answers

  • SDD
    Lv 7
    9 years ago
    Best Answer

    The answer to the first question is that it reduces the incentive to save because it creates a false sense that your retirement needs will be taken care of by the government. It also, of course, reduces the amount you have available to save by taking 15% form your earnings.

    The answer to your second question is that the reduction in benefits raises the marginal rate of tax on your earnings. Therefore it disincents producing more earned income.

  • 9 years ago

    If working people know that they will have an income at retirement that is independent of any savings, they will factor that into their decisions to save. Otherwise, without Social Security, they would know that they would have to save more to provide for their own retirement. This disincentive to save based on the existence of Social Security is magnified by the fact that many workers, especially younger ones, are short-sighted and misinformed, and assume that Social Security will take care of them better than reality suggests.

    For retirees who are collecting Social Security, their benefits will be reduced based on a percentage of their earnings over a certain amount. Since their total incomes (at least the portion that relates to this situation) is equal to the benefits of SS plus their earnings from work, the net effect of their decision to work will be that they will get to keep a smaller portion of their wages from working. This amounts to a penalty for working. More would work more hours if they got to keep more. I know of many people in this situation who work up to the cut-off point (the amount where the reduction in benefits kicks in) and then refuse to work any more hours.

  • 4 years ago

    Not 100% on all these but here ya go... 2=t 4=f 5=f 7=t 8=f 9=tricky, wouldn't say thousands but they are comprised of stocks and bonds. 11=f unless you meant 72 ;) 13=f 15=f Have fun!

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