A study by RAND Corp. researchers published in the Journal of Economic Perspectives suggests that workers remaining in the labor force past the traditional retirement age of 65 may extend the solvency of both Medicare and Social Security.  The researchers suggest that if employees 65 and older obtain insurance through their employers, Medicare would act as a secondary rather than primary payer, saving the system money.  The researchers noted that changes in the structure of employer pensions and social security benefits are already encouraging many to remain in the labor market past 65 and suggest that lawmakers pursue policies that encourage those who wish to continue working to do so.  The study suggests eliminating pension penalties for those continuing to work past retirement age and educating the public about pensions and retirement.  The authors noted that the key challenges to their proposal would likely be declining health of workers as they reach retirement age and employers’ reluctance to hire older workers.

From the abstract:

Population aging is not a looming crisis of the future -- it is already here. Economic challenges arise when the increase in people surviving to old age and the decline in the number of young people alive to support them cause the growth in society's consumption needs to outpace growth in its productive capacity. The ultimate impact of population aging on our standard of living in the future depends a great deal on how long people choose to work before they retire from the labor force. Here, there is reason for optimism. A constellation of forces, some just now gaining momentum, has raised labor force participation at older ages at just the time it is needed. We examine the most important factors behind the increase in labor force participation realized to date: the shift in the skill composition of the workforce, and technological change. We argue that forces such as changes in the structure of employer-provided pensions and Social Security are likely to propel future increases in labor force participation at older ages. The labor market is accommodating older workers to some degree, and older men and women are themselves adapting on a number of fronts, which could substantially lessen the economic impact of population aging. Age-related health declines and the reluctance of employers to hire and retain older workers present challenges, but the outlook for future gains in labor force participation at older ages is promising.

Full report: http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.1.139

RAND Corporation. (2010). How longer work lives ease the crunch of population aging. Maestas, N. and Zissimopoulos, J.