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What if the Retirement Earnings Test Were Eliminated? - ASPPA-net.org
Social Security’s Retirement Earnings Test (RET) is a somewhat complex provision that often comes as an unpleasant surprise to many who claim benefits before their full retirement age (FRA). Social Security regulations stipulate that upon beginning retirement, spousal, or survivor benefits, beneficiaries are considered “retired” and expected to leave the workforce. Current regulations allow continued earnings from employment for those who claim benefits before their full retirement age (NRA), but there is a limit to how much a worker can earn and still receive scheduled benefits before reaching NRA.
Social Security sets annual limits on the earnings early filers can record before those benefits are reduced. The limit changes each year based on the National Average Wage Index (NAWI), with the 2025 limit set at $23,400. Exceeding that limit triggers a $1 reduction for every $2 earned over the limit, affecting benefit payments. In the year the early retiree reaches FRA, there is a different limit and a different reduction factor applicable to the months until the month full retirement age is reached.
Should the RET be eliminated?
Some sources advocate elimination of the RET for several reasons. Administration of the earnings test is overly complex, creating an extraordinary amount of clerical effort to track. The reporting and verification processes place a substantial recordkeeping burden on workers and Social Security Administration staff and often contribute to the overpayment situations so often highlighted in the media. Likewise, for those who elect to file early, it is often a surprise that affects cash flow planning in retirement, especially among those intending to use the extra income to bolster their savings for later years.
From a Social Security revenue perspective, limiting retirees’ earnings reduces payroll taxes, exacerbating the program’s financial problems. Eliminating this provision would encourage workforce participation and allow retirees to earn more and pay more into the program via FICA taxes.
That’s a synopsis of the arguments in favor of eliminating the RET. But as in most proposed Social Security rule changes, there is a counterargument. A post by John Lekel on The American Society of Pension Professionals & Actuaries’ website provides an examination of potential issues that coulr result from a move in this direction. Check out his post here…