Does Eliminating the Earnings Test Increase the Incidence of Low Income Among Older Women?

48 Pages Posted: 11 Nov 2015

See all articles by Theodore F. Figinski

Theodore F. Figinski

Government of the United States of America - Department of the Treasury

David Neumark

University of California, Irvine - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

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Date Written: September 29, 2015

Abstract

Reductions in the implicit taxation of Social Security benefits from reducing or eliminating the Retirement Earnings Test (RET) are an appealing – and in many cases successful – means of encouraging labor supply of older individuals receiving benefits. The downside, however, is that the same policy reforms can encourage earlier claiming of Social Security benefits, which permanently lowers benefits paid in the future. Depending on the magnitude of the effects on earnings and how households or individuals adjust their consumption and savings decisions, the net effect can be lower incomes at much older ages well beyond when people have retired. We explore the consequences of the 2000 reforms eliminating the RET from the Full Retirement Age to age 69 for the longer-run evolution of income, focusing in particular on the incidence of low income among older women, who are more likely to have become dependent mainly on income from their Social Security benefits. We find that the elimination of the RET increased the likelihood of having low incomes among women in their mid-70s and older – ages at which the lower benefits from claiming earlier outweigh possibly higher income in the period when women or their husbands increased their labor supply.

Keywords: retirement earnings test, older women, poverty, Social Security

Suggested Citation

Figinski, Ted and Neumark, David, Does Eliminating the Earnings Test Increase the Incidence of Low Income Among Older Women? (September 29, 2015). Michigan Retirement Research Center Research Paper No. 2015-325, Available at SSRN: https://ssrn.com/abstract=2688548 or http://dx.doi.org/10.2139/ssrn.2688548

Ted Figinski

Government of the United States of America - Department of the Treasury ( email )

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David Neumark (Contact Author)

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