Selected Research & Analysis: Old-Age and Survivors Insurance (OASI) > Retirement Earnings Test
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The retirement earnings test (RET) is an often-misunderstood aspect of the Social Security program. Policymakers have proposed reforming the RET as a way to encourage working at older ages. However, this could also cause earlier benefit claiming. We use Modeling Income in the Near Term data to analyze the complete repeal of the earnings test for beneficiaries aged 60 or older, first assuming no behavioral responses to repeal and secondly assuming changes to benefit claiming and workforce participation behaviors. Our lifetime results show that the assumed behavioral response—particularly the benefit claiming change—has a bigger effect than the RET policy change itself.
Using a 1 percent sample of Social Security Administration data, this article documents and analyzes responses in the entitlement age for old-age benefits following the recent changes in Social Security rules. Both rules, the removal of the retirement earnings test (RET) for persons who are at the full retirement age (FRA) through age 69 in 2000 or later and a gradual increase in the FRA for those who reach age 62 in 2000 or later, are expected to affect the age at which people claim Social Security retirement benefits (or entitlement age) and the work behavior of older Americans.
New Evidence on Earnings and Benefit Claims Following Changes in the Retirement Earnings Test in 2000
In April 2000, Congress enacted the Senior Citizens Freedom to Work Act of 2000, which removed the retirement earnings test for individuals at the full retirement age and older. This paper examines the labor force activity of workers aged 65–69 relative to older and younger workers in response to the removal of the earnings test. We use the 1 percent sample of Social Security administrative data that covers the period from 4 years before to 4 years following the removal of the test. Quantile regression methods allow us to identify the earnings levels of workers who change their work effort.
How did workers aged 65–69 respond to the removal of the retirement earnings test in 2000? Using Social Security administrative data matched with data from the Survey of Income and Program Participation, the author finds that the higher earners in this group increased their earnings, while the lower earners did not. The author reports an acceleration of benefit applications by workers aged 65–69 but no clear evidence of increased employment in this age group.
This article summarizes an analysis of the poverty implications of repealing the retirement earnings test (RET). Repealing the RET at the normal retirement age or older is unlikely to generate large poverty effects. Removing the test at age 62 or older, however, could lead to large increases in poverty.
A major policy issue for the Social Security program is the treatment of earnings of persons who have attained retirement age. This article discusses the retirement test and recomputation of benefit provisions, and provides statistical data for 1995.
In 1995, about 806,000 persons aged 65–70 had significant earnings resulting in the withholding of benefits by the retirement test. About 1,659,000 persons aged 65 or older realized an increase in their benefit amount because of their earnings.
Simulating Aggregate and Distributional Effects of Various Plans for Modifying the Retirement Earnings Test
Social Security's retirement test continues to receive considerable attention among policymakers. During the past several years a variety of proposals have been advanced that would modify or eliminate the test for persons aged 65–69. In January 1989, we completed a study report, prepared for SSA internal use, that examined several of these proposals, analyzing their effect on earnings, taxes, and benefits in the first year of implementation, assumed to be 1990. The analysis included both aggregate estimates and estimates for selected population subgroups.
Although the specific proposals for modifying the retirement test have changed somewhat during the past 2 years, continued congressional interest has prompted the release of this initial version of our research for public discussion. Because we are in the process of revising the report for final publication, readers are cautioned that numbers and interpretations contained in this paper are subject to change.
The Effects of the Social Security Earnings Test on the Labor-Market Activity of Older Americans: A Review of the Evidence
This note discusses the net revenue estimates in the report "Paying People Not to Work: the Economic Cost of the Social Security Retirement Earnings Limit," by Aldona Robbins and Gary Robbins.