Answer
a. The provision of Social Security affects people's incentive to save while working because people are motivated to work less after retirement and work more before.
b. The reduction in benefits associated with higher earnings affects people's incentive to work past age 65 because they are less motivated to work past retirement based on the reduction in benefits that will occur.
Work Step by Step
a.
1. People work and earn a certain amount after retirement.
2. The amount obtained by working after retirement decreases when Social Security benefits are considered.
3. Working provides the most benefit without the Social Security loss.
3. People are motivated to make the most money possible.
b.
1. People work and earn a certain amount after retirement.
2. The amount obtained by working after retirement decreases when Social Security benefits are considered.
3. People are motivated to make the most money as possible.
