Social Security earnings test can reduce benefits for retirees who work
If you receive a Social Security retirement benefit and are currently working, you may see your monthly payments decrease, depending on your situation.
But if everything could change an offer – Senior Citizens’ Freedom to Work Act – signed into law.
bicameral billIt would repeal a provision known as the retirement earnings test recently proposed by Sen. Rick Scott, R-Florida, and Rep. Greg Murphy, R-North Carolina. It reduces SSI benefits for individuals who start their retirement benefits early and continue working.
Retirement earnings test affects those who have previously claimed Social Security full retirement ageWhen beneficiaries are eligible to receive 100% of their earned retirement benefits. This is usually between the ages of 66 and 67, depending on the year of birth.
In 2026, individuals under full retirement age can earn up to $24,480 for the year before the retirement earnings test is applied. For income exceeding this annual limit, the Social Security Administration will deduct $1 from benefits for every $2 earned.
The earnings limit for individuals reaching full retirement age in 2026 is $65,160. For incomes that exceed this threshold, the Social Security Administration will withhold $1 in benefits for every $3 in earnings in the months before the birthday.
Once the beneficiary reaches full retirement age, benefits are no longer reduced by earnings.
Specifically, according to the Social Security Administration, beneficiaries affected by the retirement earnings test will have their benefits recalculated once they reach full retirement age, with credit given for the months their benefits were reduced or discontinued.
“This bill would eliminate the unfair retirement earnings test, so seniors who want to stay in the workforce can do so without being penalized or stripped of their hard-earned rights.” Scott said during a March 25 Senate aging committee hearing.
It remains to be seen whether the Republican-led bill eliminating the retirement earnings test will gain traction on Capitol Hill.
Scott introduced the bill to the Senate on March 24, where it was referred to the Senate Finance Committee. Murphy introduced the companion measure in the House on April 16, where it was referred to the Ways and Means Committee.
Pension earnings test could be ‘disincentive to work’
In his testimony, Scott said the proposal to repeal the retirement earnings test came because workers 55 and over are the fastest-growing age group in the workforce.
The Society for Human Resource Management (SHRM) has “advocated very heavily” for a review of the retirement earnings test provisions, human resources association president and CEO Johnny C. Taylor Jr., who testified at a Senate aging committee hearing, told CNBC.com.
“For people who make a lot of money, it doesn’t matter to them,” Taylor said. “But if you’re in the middle income or lower bracket where losing dollars at that moment could mean the difference between being able to pay for your medicine or food, then that’s a deterrent. [to work]dot, dot.”
Social Security retirement beneficiaries already face the consequences of claiming benefits early. If they start benefits at age 62, the earliest retirement age, they may see a reduction in their benefits. up to 30%According to the Social Security Administration.
Claimants receive 100% of their benefits, waiting to claim until full retirement age. However, beneficiaries may see their benefits increase by 8% for each year they delay full retirement age until age 70.
Experts say lawmakers should take note
In testimony at a Senate committee on aging hearing, Rachel Greszler, a senior research fellow at the Plymouth Free Enterprise Institute, said the retirement earnings test, created in 1935, was “a remnant of the Great Depression,” when policymakers wanted to push older Americans out of the workforce to create jobs for younger workers.
The retirement earnings test “is a little-known and often misunderstood test,” Greszler said.
“While lost benefits are gradually added back into recipients’ monthly checks after they reach full retirement age, most people don’t know this and perceive the test as a pure tax and then reduce their earnings or stop working altogether,” Greszler said. he said.
Individuals with lower life expectancy may not be able to recoup all or any of the lost benefits, he said.
The retirement earnings test costs the Social Security Administration $70 million a year and can trigger improper payments, which require beneficiaries to return some of their benefit income to the agency if they have been overpaid, according to Greszler.
A. law signed In 2000, President Bill Clinton ensured that the retirement earnings test would no longer apply to workers over full retirement age.
Dan Adcock, director of government relations and policy for the National Committee to Protect Social Security and Medicare, said in testimony to the Senate committee on aging that many seniors who were not covered by the 2000 law complained they were left out.
“I know from attending town hall meetings with elders that the law is being repealed. [retirement earnings test] it would be extremely popular,” Adcock said.
But before making that change, lawmakers should consider the impact on seniors and the solvency of Social Security funds, which are projected to run out in less than a decade, he said.
Adcock said the Social Security Administration’s actuaries found that repealing the retirement earnings test would ultimately reduce trust fund costs. But in the short term, repealing the provision would require paying more benefits, which could impact the program’s funding as combined trust fund reserves are projected to run out in 2034, he said.
How to plan around earnings testing?
For now, Social Security beneficiaries who have not yet reached full retirement age need to consider how the retirement earnings test might affect their income.
When clients hear benefits are decreasing, they often assume they should stop working or turn down opportunities, said Mark Stancato, a certified financial planner, registered agent and founder of VIP Wealth Advisors in Decatur, Georgia.
“A lot of people don’t realize right now that you can get this reduced benefit, but you’ll get it back,” Stancato said. “This is not a permanent punishment.”
Other factors should also be taken into consideration, such as how important it is to continue working in light of personal goals, he said.
Individuals who wish to continue working also need to consider when is the best time to claim Social Security benefits based on their particular circumstances. If they decide to make a claim, they also need to consider how the extra income from work will affect their lives. Stancato said there are taxes on Social Security benefits.
To learn how the retirement earnings test may affect you, consult a Social Security Administration report. calculator on the website.
