Executive Summary
Each additional year that Americans delay retirement generates roughly $1 trillion in economic value. This estimate rests on three core inputs: approximately 3.8 million Americans leave the workforce each year at retirement ages, about $230,000 in GDP per full-time-equivalent employee, and an estimated $25,600 economic loss associated with tax revenue needed to finance retirement-related transfers for each new retiree. The calculation captures both the standard efficiency costs of taxation and the broader losses in innovation and productivity growth that can arise when taxes fall on productive workers. The estimate is conservative, with each input grounded in federal data or peer-reviewed research. The policy implication is straightforward: Retirement decisions should remain voluntary, but policies that help healthy, able Americans work longer can generate substantial economic gains for the country.
Policy Context
The Social Security Act was signed in 1935 to provide old-age benefits beginning at age 65. The program rested on a straightforward demographic bargain: Workers would contribute through payroll taxes during their careers, and—like any insurance contract—a small proportion of the population would collect benefits for a relatively short period before death. Life expectancy at birth in 1935 was approximately 61 years—four years less than the eligibility age—and those who reached age 65 were expected to live 13 more years.[1]
That demographic bargain has changed dramatically. By 1983, remaining life expectancy at age 65 had reached almost 17 years, about one-third higher than when Social Security was enacted.[1, 2] In response to longer life and improved health, the 1983 Social Security Amendments gradually raised the full retirement age from 65 to 67—the only longevity-indexed adjustment in the program’s history.[1] Today, more than 75 million people receive Social Security benefits each month, and remaining life expectancy at age 65 is roughly 19 years, changing the economics of retirement.
Of course, Americans benefit enormously from better health and longer lives; prior research shows that reductions in mortality and morbidity can generate social benefits in the trillions of dollars.[3] What is less well-known, however, is the economic value created when healthy, able Americans work longer. Every year that a healthy, productive American retires earlier, the economy loses roughly $230,000 in annual GDP, imposes $38,200 in net transfer costs that must be financed through distortionary taxation, and forgoes the innovation spillovers that experienced workers generate for their colleagues and industries. For the roughly 3.8 million Americans who exit the labor force at retirement ages each year, the aggregate cost is roughly $1 trillion annually. This estimate is not a projection or a model artifact—it is the arithmetic consequence of the productivity, tax and benefit numbers that federal agencies publish every year. The analysis that follows makes this calculus explicit.
This issue brief focuses on the societal value of working longer for those who are able and willing to do so—not on mandatory increases in the retirement age. The distinction matters: The goal is to remove barriers that prevent able workers from contributing longer, not to penalize those whose health, caregiving responsibilities or occupation make extended work unrealistic.
The Core Comparison
The basic logic we have applied here can be illustrated with a simple thought experiment. Consider two couples of full-time American workers who are on the verge of retirement and deciding whether to work one more year. One member of the first couple decides to retire while the other continues. Both members of the second couple keep working. The value of delaying retirement by one year is the difference between what society gains in the two scenarios.
Each working person generates approximately $230,000 in output—the 2026 GDP per full-time-equivalent (FTE) employee, including a conservative adjustment for unmeasured welfare. When one member of the couple retires, that $230,000 disappears. In addition, the retired worker receives approximately $38,200 in Social Security and Medicare benefits—after accounting for the actuarial increase in the worker’s future Social Security benefits earned by delaying retirement (delayed-retirement credit). Financing those transfers requires taxes on the remaining worker, which distorts the worker’s behavior—they work fewer hours, shelter income and invest less productively—at a cost of approximately 67 cents per dollar raised once the innovation channel is incorporated, or $25,600. In total, the difference in economic value between the treatment and control couple is $230K + $25.6K ≈ $255.6K.*
*Technical notes on the deadweight-loss calibration and present-value treatment of future benefits are provided in the FAQ of the Technical Appendix.
Disclosure
This research was supported by a contract with the Centers for Medicare and Medicaid Services to conduct economic and policy analysis. In addition, the USC Schaeffer Center receives funding from foundations, corporations, government agencies, individuals, and an endowment. A complete list of supporters can be found in annual reports published online here.
References
[1] Olshansky, S. J., D. P. Goldman and J. W. Rowe. (2015). “Resetting Social Security.” Daedalus, 144 (2): 68–79.
[2] Social Security Administration. (2025). “Actuarial Life Table.” https://www.ssa.gov/oact/STATS/table4c6.html.
[3] Goldman, D. P., et al. (2013). “Substantial Health and Economic Returns From Delayed Aging May Warrant a New Focus for Medical Research.” Health Affairs, 32 (10): 1698–1705. doi: 10.1377/hlthaff.2013.0052.
