More people are working past the traditional retirement age, and for many, it simply comes down to this: They need the money.
Despite a historically strong economic recovery, the number of people ages 65 and older who live in poverty has increased by more than 1 million since before the pandemic.
Many of these individuals are no longer in the workforce, but for those who are — and for others who can and want to rejoin — access to the earned income tax credit (EITC) could boost their financial security in pivotal ways. But despite being the most important anti-poverty tax benefit for the working poor, the federal EITC and most of its parallel state credits are unavailable to most workers ages 65 and older.
It’s time to fix that.
Over the past two decades, the number of people 65 and older in the workforce has doubled, and in coming years they’ll have the largest and fastest labor force increase of any age group. This is important for economic growth, which will increasingly depend on older workers’ labor supply as our population ages.
To be sure, people’s motives and abilities to work later in life vary. For those with economic and social advantages, working at older ages has been enabled by better health and can be just as much about finding meaning, purpose or social connection as it is about earning a paycheck.
But for many others — especially women and workers of color — the driving force is financial. Huge gaps in retirement savings by race, income and gender mean that work is essential to covering bills for many older Americans. Women are especially likely to report working after retirement because they need the money. Adding to the struggle is the prevalence of low-wage work among older women, more than one-third of whom are low-wage earners.
The earned income tax credit is a policy proven to boost economic stability for low-income workers, improve health and help people stay attached to the workforce when desired. It rewards work.
Since it was established in 1975, the earned income tax credit has evolved from a temporary economic growth policy to a permanent tax credit that initially supported low-income workers with kids. With each ensuing update, signed into law by presidents of both political parties, the poverty-fighting power of the EITC has grown. In 2018, 5.6 million people — including nearly 3 million children — avoided poverty thanks to the credit.
The earned income tax credit has been available to workers without children since 1993, but the current structure fails them in two key ways.
First, the size of the credit is meager. It maxes out at just over $600, and the income eligibility is so restrictive that even a full-time worker making the federal minimum wage makes too much to qualify. As a result, few childless workers even benefit. By comparison, the maximum credit is $4,200 for a worker with one child. The $600 credit is so paltry that it’s not enough to offset the federal income and payroll taxes paid by low-wage childless workers.
Second, childless workers in the “bookend” generations — people under age 25 or ages 65 and up — aren’t even eligible for this small credit. The EITC is only available to the youngest and oldest workers if their household includes dependent children, which tends to be rare for older people.
These outdated age restrictions fail to recognize how much has changed since 1993, especially for older adults. Most obviously, Social Security’s full retirement age has crept upward and now stands at age 67, effectively reducing benefits by 13 percent compared to when it was 65. Filling that gap has been made harder by the disappearance of pensions and retiree health benefits in the private sector.
For people at the lower end of the income ladder, many of whom never had access to retirement benefits in the first place, filling the retirement income shortfall is only made possible by working.
Policymakers can help expand access to the EITC for people planning to stay in the workforce past what we’ve traditionally labeled “retirement age.” Congress took an important step in the American Rescue Plan Act, by boosting its value and removing the age restrictions on who could receive it. But this relief was only temporary.
President Biden’s Fiscal Year 2025 budget calls for making changes to the EITC permanent. It would put an average of $800 into the pocketbooks of millions of low-wage workers, including 2 million older workers ages 65 and older and 5 million younger workers under 24.
In addition, many states have their own earned income credits, and eligibility for these benefits often mirrors the federal credit. Some states — including California, Illinois and New Jersey — have extended their credits’ eligibility by eliminating age restrictions. More states should follow their lead.
These approaches represent the right policy at the right time. Extending the EITC’s success in supporting families with children and low-income workers, regardless of age, would provide a solid boost to low-income seniors trying to get that last bit of retirement security.
Beth Almeida is a senior fellow with the Women’s Initiative at the Center for American Progress. Brendan Duke is the senior director for economic policy at the Center for American Progress.