NCPA - National Center for Policy Analysis

Caution On Repealing The Earnings Test For Early Retirees

June 6, 2000

Although the Social Security earnings test for seniors ages 65 to 69 was recently repealed, it remains in effect for those ages 62 to 64. Political observers expect pressures to increase so as to remove the penalty on this younger group in the not-too-distant future, but some economists are warning this could leave more seniors in poverty.

  • Under previous law, seniors 65 to 69 lost $1 for every $3 they earned over $17,000 this year.
  • The younger group continues to lose $1 for every $2 they earn over $10,800 a year.
  • Starting this year, the normal retirement age for full Social Security benefits is being pushed back two months a year, until it reaches 67 in 2012 -- meaning that those 65 to 67 will also become subject to the earnings test for early retirees.

Jonathan Gruber at the Massachusetts Institute of Technology contends that if the earnings test were lifted entirely, many older retirees could end up in poverty. That's because most workers would opt to start collecting Social Security at 62 -- thereby cutting their monthly checks by 20 percent relative to what they would have gotten if they waited until age 65.

Source: Gene Koretz, "A Coming Social Security Battle?" Business Week, June 12, 2000.


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