The Social Security Earnings Test: The Tax That Wasn't
4 Pages Posted: 22 Jul 2008
Date Written: July 17, 2008
Most seniors view the Social Security earnings test as a "tax" that reduces their Social Security benefits by fifty cents for each dollar they earn above a modest limit. In fact, the earnings test is not a tax at all: at a person's full retirement age, Social Security increases benefits to account for any lost to the earnings test in earlier years. Over the typical retiree's lifetime, total benefits are almost exactly the same. Most retirees are unaware of this because the Social Security Administration (SSA) and financial advisers fail to inform them of how the earnings test works. Retirees need better information - and policymakers should consider whether the earnings test makes sense at all.
Keywords: old-age retirement benefits, retirement earnings test, Social Security
JEL Classification: H55
Suggested Citation: Suggested Citation