NCPA - National Center for Policy Analysis

Repealing Earnings Limit On Seniors

February 28, 2000

We are continually told that workers have a "right" to Social Security whenever there is a proposal to modify cost of living adjustments, says Bruce Bartlett. But on the other hand, we take away benefits from many seniors simply because they have chosen to work past the normal retirement age.

Tha is because retirees drawing Social Security benefits are subject to an earnings test.

  • For those ages 65 through 69, one dollar of benefits is withheld for every three dollars in wage income above $17,000 per year.
  • For those ages 62 through 64, one dollar is withheld for every two dollars earned above $10,080.

According to the Social Security Administration, 3.5 million people between the ages of 62 and 69, about 37 percent of all retirees under the age of 70, have some earned income:

  • In 1995, 743,000 workers ages 65 to 70, or 8.5 percent of all retired worker beneficiaries, had their Social Security benefits reduced because their earnings exceeded the allowed amount.
  • About 214,000 or 29 percent of those losing benefits received no Social Security benefits at all that year.
  • The total amount of benefits lost was $4.3 billion and the median benefits lost per recipient was $3,596.

The long term cost of eliminating the earnings test should in theory be zero. In coming years, seniors who retire later will receive a larger Delayed Retirement Credit, which is supposed to cause lifetime benefits to be the same regardless of when people begin to draw benefits. Higher benefits paid out in the short-run to people who would otherwise lose benefits because of the earnings test will be offset by lower future benefits because they will no longer claim the DRC.

Source: Bruce Bartlett, senior fellow, "Why the Social Security Earnings Penalty Should Be Repealed," Policy Backgrounder No. 152, February 28, 2000, National Center for Policy Analysis.

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