Impact of the Social Security Retirement Earnings Test on 62-64 Year-Olds
56 Pages Posted: 25 Jan 2013
Date Written: December 3, 2003
This paper by the Urban Institute explores the impact of the RET on individual behavior. The RET may affect two personal decisions: (1) how many hours to work (including leaving the workforce); and (2) at what age to start claiming Social Security benefits. The RET may discourage a certain group of older citizens from working. This is the group of workers aged 62 to 64 who already receive Social Security benefits and who have labor income just below the RET or between the RET threshold and the point at which the RET completely taxes away the individual’s Social Security benefit. Higher earners may be affected in the opposite direction: removing the RET would allow them to receive Social Security benefits for the first time, and this might lead some high earners to cut back on their work hours. The RET may also discourage workers from taking up Social Security benefits at ages below the NRA, because it temporarily taxes away some part of Social Security benefits. These behavioral questions have important implications for the present, and future, total incomes of workers between the ages of 62 and 64 who may be subject to the RET. The goal of this paper is to examine these potential behavioral changes and the relative importance of work effort and Social Security take-up decisions to total income levels.
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