Hey, SSA–let’s give the full story on the earnings test.

I have an automated Google search that generates daily results on the phrase “Social Security” so that I don’t miss anything of interest. (Downside: it goes generate a lot of junk.)

But today’s trawl  gave me an update from the Social Security Administration regarding the retirement earnings test (or RET). Here’s what they have to say:

Changes in the retirement exempt amounts under the earnings test

What are the earnings test exempt amounts for 2013?

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The retirement earnings test applies only to people under  full retirement age. Social Security withholds benefits if your earnings exceed a certain level and if you are under your full retirement age. We call this a retirement earnings test. One of two exempt amounts applies depending on the year you reach full retirement age (age 66 for people born in 1943 through 1954).

1. For people younger than full retirement age in 2013, the annual exempt amount is $15,120. (We deduct $1 from benefits for each $2 earned over $15,120.); or

2. For people who reach full retirement age in 2013, the annual exempt amount is $40,080. (We deduct $1 from benefits for each $3 earned over $40,080 until the month you reach full retirement age.)

There is no limit on earnings for workers who are full retirement age or older the entire year.

To get prior years' exempt amounts under the earnings test, see Retirement Exempt Amounts Under The Earnings Test.

 

Ok, so what’s missing here? ANY mention of the fact that any benefits you lose to the RET prior to the full retirement age are returned to you via a higher monthly benefit once you hit the FRA. In other words, for the average person the earnings test doesn’t reduce total lifetime benefits and so people shouldn’t view it as a “tax” on work. It’s really just a delay in benefits, and it delays them to a time later in life when, because you can’t work, you might value them more.

One of my prouder accomplishments during my time at SSA was to improve some of the agency’s educational material on the earnings test to better inform people of how the RET really works. But there’s still more work to be done.

For more on the earnings test, see my AEI paper here.