Social Security Retirement Earnings Test:
How Earnings Affect Benefits
Dawn Nuschler
Specialist in Income Security
Alison M. Shelton
Analyst in Income Security
January 14, 2011
The House Ways and Means Committee is making available this version of this Congressional Research Service
(CRS) report, with the cover date shown above, for inclusion in its 2011 Green Book website. CRS works
exclusively for the United States Congress, providing policy and legal analysis to Committees and Members of
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Social Security Retirement Earnings Test: How Earnings Affect Benefits
Summary
Under the Social Security Retirement Earnings Test (RET), the monthly benefit of a Social
Security beneficiary who is below full retirement age (FRA) is reduced if he or she has earnings
that exceed an annual threshold. In 2011, a beneficiary who is below FRA and will not attain FRA
during the year is subject to a $1 reduction in benefits for each $2 of earnings above $14,160. A
beneficiary who will attain FRA in 2011 is subject to a $1 reduction in benefits for each $3 of
earnings above $37,680. The annual exempt amounts ($14,160 and $37,680 in 2011) generally
are adjusted each year according to average wage growth.
If a beneficiary is affected by the RET, his or her monthly benefit may be reduced in part or in
full, depending on the total applicable reduction. For example, if the total applicable reduction is
greater than the beneficiary’s monthly benefit amount, no monthly benefit is payable for one or
more months. If family members also receive auxiliary benefits based on the beneficiary’s work
record, the reduction is pro-rated and applied to all benefits payable on that work record
(including benefits paid to spouses who are above FRA). For example, in the case of a family
consisting of a worker beneficiary who has earnings above the annual exempt amount and a
spouse and child who receive benefits based on his or her work record, the benefit reduction that
applies under the RET is charged against the total family benefit.
The RET has been part of the Social Security program in some form throughout the program’s
history. The original rationale for the RET was that, as a social insurance system, Social Security
protects workers from certain risks, including the loss of earnings due to retirement. Therefore,
benefits should be withheld from workers who show by their earnings that they have not
“retired.” The RET does not apply to Social Security disability beneficiaries who are subject to
separate limitations on earnings.
If a beneficiary is affected by the RET, his or her monthly benefit is recomputed, and the dollar
amount of the monthly benefit is increased, when he or she attains FRA. This feature of the RET,
which allows beneficiaries to recoup benefits “lost” as a result of the RET, is not widely known or
understood. The benefit recomputation at FRA is done by adjusting (lessening) the actuarial
reduction for retirement before FRA that was applied in the initial benefit computation to take
into account months for which benefits were reduced in part or in full under the RET. Any
spousal benefits that were reduced because of the RET are recomputed when the spouse attains
FRA. For a spouse who has already attained FRA, however, there is no subsequent adjustment to
benefits to take into account months for which no benefit or a partial benefit was paid as a result
of the RET.
The Social Security Administration estimates that elimination of the RET for individuals aged 62
or older would have a negative effect on the Social Security trust fund in the amount of $81
billion from 2012 to 2018, although it would have no major effect on Social Security’s projected
long-range financial outlook.
This report explains how the RET works under current law. In addition, it provides benefit
examples to illustrate the effect of the RET on Social Security beneficiaries who are below FRA
and family members who receive benefits based on their work records. It also briefly discusses
policy issues, including recent research on the effect of the RET on work effort and the decision
to claim Social Security benefits. This report will be updated periodically.
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Social Security Retirement Earnings Test: How Earnings Affect Benefits
Contents
Introduction ................................................................................................................................ 1
Historical Background ................................................................................................................ 2
Current Law................................................................................................................................ 3
Social Security Worker and Auxiliary Benefits ...................................................................... 3
The RET Applies to Beneficiaries Below the Social Security Full Retirement Age................. 3
The RET Reduces Social Security Benefits ........................................................................... 4
The RET Exempt Amounts.................................................................................................... 4
Grace Year ............................................................................................................................ 5
The RET May Affect Social Security Benefits Received by Spouses, Survivors and
Other Dependents .............................................................................................................. 5
Dually Entitled Beneficiaries........................................................................................... 5
Benefits Withheld Under the RET are Restored Starting at FRA .................................................. 6
Worker Beneficiaries with Earnings in 2006................................................................................ 7
Application of the Retirement Earnings Test................................................................................ 9
Policy Issues ............................................................................................................................. 16
The RET and Work Incentives............................................................................................. 16
The RET and Incentives to Claim Social Security Benefits .................................................. 17
The RET, Retirement Security and Early Benefit Claims ..................................................... 17
Other Policy Issues ............................................................................................................. 18
Financial Effect of Repealing the RET on the Social Security Trust Fund .................................. 19
Tables
Table 1. Number of Worker Beneficiaries with Earnings in 2006 ................................................. 8
Table 2. Application of the Retirement Earnings Test to a Single Worker Beneficiary with
Earnings Above the Annual Exempt Amount, 2011................................................................. 10
Table 3. Application of the Retirement Earnings Test to a Family Consisting of a Worker
Beneficiary with Earnings Above the Annual Exempt Amount and Auxiliary
Beneficiaries (a Spouse and a Child), 2011............................................................................. 12
Table 4. Application of the Retirement Earnings Test to a Couple Consisting of a Worker
Beneficiary and an Auxiliary (Spousal) Beneficiary, Both of Whom Have Earnings
Above the Annual Exempt Amount and Are Below FRA Throughout the Calendar Year,
2011....................................................................................................................................... 14
Table 5. Applicability of the Retirement Earnings Test to Worker Beneficiaries
and Auxiliary Beneficiaries .................................................................................................... 15
Table A-1. Computation of a Worker’s Primary Insurance Amount in 2011 Based on an
Illustrative AIME of $5,000 ................................................................................................... 20
Table B-1. Social Security Auxiliary Benefits............................................................................ 23
Table C-1. Annual Exempt Amounts Under the Social Security Retirement Earnings Test,
Calendar Years 2000-2011...................................................................................................... 25
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Social Security Retirement Earnings Test: How Earnings Affect Benefits
Appendixes
Appendix A. Computation of the Social Security Retired-Worker Benefit.................................. 20
Appendix B. Social Security Auxiliary Benefits (Benefits for the Worker’s Family
Members) .............................................................................................................................. 22
Appendix C. Annual Exempt Amounts Under the Social Security Retirement Earnings
Test, Calendar Years 2000-2011 ............................................................................................. 25
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Social Security Retirement Earnings Test: How Earnings Affect Benefits
Introduction
Social Security benefits received before a person attains full retirement age (FRA)1 are subject to
an actuarial reduction for early retirement and also may be reduced by the Social Security
Retirement Earnings Test (RET) if the beneficiary has earnings that exceed an annual threshold.
Under the RET, a beneficiary who is below FRA and will not attain FRA during the calendar year
is subject to a $1 reduction in benefits for each $2 of earnings above an annual exempt amount,
which is $14,160 in 2011. During the calendar year in which a beneficiary attains FRA, he or she
is subject to a $1 reduction in benefits for each $3 of earnings above a higher annual exempt
amount, which is $37,680 in 2011.2
This report explains how the RET is applied under current law and provides detailed benefit
examples to show how the RET affects both the worker beneficiary and any family members
(auxiliary beneficiaries) who receive benefits based on the worker beneficiary’s record. The
report points out features of the RET that are not widely known or understood, such as the
recomputation of benefits when a beneficiary attains FRA to adjust (increase) benefits to take into
account months for which no benefit or a partial benefit was paid as a result of the RET. Finally,
the report discusses policy issues related to the RET, including recent research on the effect of the
RET on work effort and the decision to claim Social Security benefits.
Key points discussed in the report include the following:
• Benefits may be reduced in part or in full for one or more months as a result of
the RET.
• Benefit reductions under the RET apply both to the worker beneficiary and to any
family members (auxiliary beneficiaries) who receive benefits based on the
worker beneficiary’s record. This would include, for example, a dependent child
and a spouse who may have already attained FRA.
• When a worker beneficiary and family members are subject to a benefit reduction
under the RET, the reduction is pro-rated and applied to each person’s benefit in
proportion to each person’s original entitlement amount. (The total amount of the
reduction remains the same, but the reduction is pro-rated across more people.)
• An auxiliary beneficiary may be subject to a reduction in benefits under the RET
both on the basis of the worker beneficiary’s earnings above the exempt amount
and on the basis of his or her own earnings above the exempt amount.
• Benefits “lost” as a result of the RET may be recouped by the beneficiary. When
a beneficiary attains FRA and is no longer subject to the RET, his or her benefits
1 The Social Security FRA is increasing gradually from age 65 to age 67 for workers born in 1938 or later; it will reach
age 67 for workers born in 1960 or later. The FRA is 66 for workers who attain age 62 in 2011 (workers born in 1949)
and workers who attain age 65 in 2011 (workers born in 1946). A person who claims benefits at FRA will receive full
(unreduced) benefits. Workers may claim retirement benefits as early as age 62; however, a worker who claims benefits
before FRA is subject to an actuarial reduction to benefits for early retirement that is unrelated to the RET.
2 The Social Security Administration defines “excess earnings,” for people who are below FRA and will not attain FRA
during the calendar year, as 50% of earnings above the annual exempt amount. For people who will attain FRA during
the calendar year, “excess earnings” are defined as 33 1/3% of earnings above the annual exempt amount (20 C.F.R. §
404.430(b)). This definition is helpful for understanding the method of charging excess earnings against monthly
benefits as described in the regulations (20 C.F.R. § 404.434(b)).
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are adjusted upward to take into account months for which no benefit or a partial
benefit was paid as a result of the RET.
• The Social Security Administration (SSA) estimates that elimination of the RET
for individuals aged 62 or older would have no major effect on Social Security’s
projected long-range financial outlook. In the short run, however, SSA estimates
that eliminating the RET would have a negative effect on the Social Security trust
fund in the amount of $81 billion from 2012 to 2018.
• The RET raises several policy issues, including the effect of the RET on labor
supply (how many hours to work and when to retire) and its effect on when
workers claim Social Security benefits.
Historical Background
In general, Social Security benefits are meant to replace, in part, earnings lost to an individual or
family because of retirement, disability, or death. The rationale for the RET was outlined in the
1935 report of the Committee on Economic Security, which recommended that no benefits be
paid before a person had “retired from gainful employment.”3
The original Social Security Act barred payment of benefits for any month in which a beneficiary
received wages from “regular employment.”4 This provision never went into effect, however,
because the Social Security Board and many other analysts thought it would be nearly impossible
to determine what was “regular” employment in different industries and occupations. Instead, the
board recommended a specific monetary amount to simplify administration. In 1939, Congress
incorporated these recommendations in amendments to the Social Security Act.5 Starting with the
first benefits paid in 1940, benefits were withheld for months in which covered earnings were $15
or more.
The RET has evolved from a monthly test to an annual one (with the exception of the “grace
year” as discussed below) and from a provision that initially affected all worker beneficiaries to
one that affects beneficiaries who are below the FRA. The most recent legislative change to the
RET was in 2000 when Congress eliminated the RET for beneficiaries beginning with the month
they attain FRA. This change was made under the Senior Citizens Freedom to Work Act (P.L.
106-182). Before the change in 2000, the RET applied to beneficiaries until they attained the age
of 70.
3 Committee on Economic Security, Report of the Committee on Economic Security, Washington, DC, January 1935,
http://www.socialsecurity.gov/history/reports/ces5.html, in the section entitled “Contributory Annuities (Compulsory
System): Outline of Plan.”
4 P.L. 74-271, the Social Security Act of 1935, Sec. 202(d), http://www.ssa.gov/history/35actii.html#Old-Benefit.
5 P.L. 76-379, the Social Security Act Amendments of 1939, Sec. 203(d)(1) and Sec. 203(e),
http://www.socialsecurity.gov/history/pdf/1939Act.pdf.
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Current Law
Social Security Worker and Auxiliary Benefits
Social Security benefits are based on the average of a worker’s highest 35 years of earnings. A
worker’s primary insurance amount (PIA) is computed by applying the Social Security benefit
formula to the worker’s career-average, wage-indexed earnings. The benefit formula replaces a
higher percentage of the pre-retirement earnings of workers with low career-average earnings
than for workers with high career-average earnings.
A worker’s initial monthly benefit is equal to the worker’s PIA if he or she begins receiving
benefits at FRA. A worker’s initial monthly benefit will be less than his or her PIA if the worker
begins receiving benefits before FRA, and it will be greater than his or her PIA if the worker
begins receiving benefits after FRA.6 For a more detailed explanation of the Social Security
benefit computation and the actuarial adjustment to benefits claimed before or after FRA, see
Appendix A.
Social Security also provides auxiliary benefits to eligible family members of a retired, disabled
or deceased worker. Benefits payable to family members are equal to a specified percentage of
the worker’s PIA. For example, a spouse’s benefit is equal to 50% of the worker’s PIA, and a
widow(er)’s benefit is equal to 100% of the deceased worker’s PIA. The total amount of benefits
payable to a family based on a retired or deceased worker’s record is capped by the maximum
family benefit amount, which varies from 150% to 188% of the retired or deceased worker’s PIA.
For more information on auxiliary benefits and the maximum family benefit amount, see
Appendix B.
The RET Applies to Beneficiaries Below the Social Security Full
Retirement Age
The RET applies to beneficiaries who are below the Social Security FRA and have earnings that
exceed a specified dollar amount (an annual exempt amount). The RET does not apply to worker
beneficiaries who are at or above FRA (the RET no longer applies beginning with the month the
beneficiary attains FRA) or to those who are disabled.7 In addition, the RET does not apply to
6 For workers who claim benefits before FRA, the monthly benefit amount is decreased by an adjustment that is
roughly actuarially fair. The purpose of the actuarial reduction is to ensure that the worker receives roughly the same
total lifetime benefits regardless of when he or she claims benefits between age 62 and FRA (assuming he or she lives
to average life expectancy). Benefits taken before FRA are reduced about 6.7% per year for the first three years of
benefit entitlement before FRA (i.e., the first 36 months from age 62 to age 65) and 5% per year thereafter. For
example, for a worker whose FRA is 66, claiming benefits at age 62 results in an initial monthly benefit that is 25%
lower than his or her PIA ((6.7% * 3 years) + (5% * 1 year)). Workers who delay filing for benefits until after FRA
receive a delayed retirement credit (DRC). The DRC applies beginning with the month the worker attains FRA and
ending with the month before he or she attains age 70. Starting in 1990, the DRC increased until it reached 8% per year
for workers born in 1943 or later (i.e., starting with those who attained age 62 in 2005 or age 66 in 2009).
7 Beneficiaries of Social Security Disability Insurance (SSDI) are subject to different rules and limitations regarding
earnings. The limitations on earnings for SSDI beneficiaries are referred to as substantial gainful activity (SGA)
amounts. The SGA differs from the RET in that a disability beneficiary whose earnings exceed the SGA threshold,
after a trial work period, will lose eligibility for Social Security disability benefits. By contrast, a person whose
earnings exceed the annual RET threshold may receive partial or full Social Security benefits for any months of the
(continued...)
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beneficiaries living outside the United States whose work is not covered by the U.S Social
Security system; in this case, the “foreign work test” is applied. Self-employed persons are
subject to the RET if they have performed “substantial services,” which are determined by the
nature of the service performed rather than by profit or loss.
The RET Reduces Social Security Benefits
For beneficiaries who are below FRA and will not attain FRA during the calendar year, Social
Security benefits are reduced by $1 for each $2 earned above the exempt amount. For
beneficiaries who will attain FRA during the calendar year, Social Security benefits are reduced
by $1 for each $3 earned above the exempt amount.8
Earnings above the exempt amount are charged against monthly benefits beginning with the first
chargeable month of the year, at the applicable rate of $1 for each $2 or $3 of earnings above the
exempt amount, and continue to be charged each month until all earnings above the exempt
amount have been charged against the worker’s benefits and any benefits payable to family
members on his or her work record. A partial benefit is paid when the charge to a given month is
less than the monthly benefit.
The RET Exempt Amounts
The RET applies only to wage and salary income (i.e., earnings from work). It does not apply to
income from pensions, rents, dividends, interest, and other types of “unearned” income.
The RET annual exempt amounts in 2011 are $14,160 for beneficiaries who are below FRA and
will not attain FRA in 2011, and $37,680 for beneficiaries who will attain FRA in 2011. The RET
(...continued)
year after the RET charge has been applied. In addition, the benefit recomputation at FRA results in an upward
adjustment of the Social Security benefit amount to reflect any months in which benefits were withheld in full or in part
under the RET. In 2011, the SGA amount for non-blind beneficiaries is $1,000 a month (net of impairment-related
work expenses). For blind beneficiaries, the SGA amount is $1,640 a month. Both amounts generally increase with the
increase in average wages. For purposes of SSDI, a “disability” is defined as the inability to engage in substantial
gainful activity by reason of a medically determinable physical or mental impairment expected to result in death or last
at least 12 months. For more information, see CRS Report RL32279, Primer on Disability Benefits: Social Security
Disability Insurance (SSDI) and Supplemental Security Income (SSI), by Umar Moulta-Ali.
8 Beneficiaries who will attain FRA during the calendar year are treated differently as a result of a compromise reached
when the RET structure was modified in 2000. Before 2000, there were two RETs, one for beneficiaries below FRA
and one for beneficiaries between FRA and age 70. The RET for beneficiaries between FRA and age 70 was more
generous; the exempt amount was higher and the reduction to benefits was $1 for each $3 of earnings above that
amount. By comparison, the RET for beneficiaries below FRA applied a lower exempt amount and the reduction to
benefits was $1 for each $2 of earnings above that amount. In 2000, when Congress eliminated the RET for
beneficiaries beginning with the month they attain FRA, there was a concern that beneficiaries who would attain FRA
in 2000 would be worse off. The concern arose because, under pre-2000 law, the more generous RET applied to
beneficiaries starting in January of the year they attained FRA. Therefore, eliminating the more generous RET would
cause these beneficiaries to be subject to the lower exempt amount and the 50% offset during that year. To address this
concern, the House version of the legislation, for 2000 only, allowed beneficiaries attaining FRA in 2000 to be subject
to the more generous RET in the months preceding attainment of FRA. A Senate Manager’s Amendment extended this
provision to all future beneficiaries for the year they attain FRA. In April 2000, President Clinton signed the legislation,
which became P.L. 106-182.
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exempt amounts generally increase each year at the same rate as average wages in the economy.9
Appendix C shows the annual exempt amounts under the RET from calendar years 2000 to 2011.
Grace Year
A “grace year” applies during the first year of benefit entitlement (or, for dependent beneficiaries,
in the last year of benefit entitlement). During the grace year, the RET is applied effectively on a
monthly basis. A beneficiary may receive full benefits for any month during which his or her
earnings do not exceed one-twelfth of the annual exempt amount, regardless of the total amount
of earnings for the year.
As an example, consider a worker aged 62 who (1) has $60,000 in earnings from January through
June 2011, (2) claims Social Security retirement benefits on July 1, 2011, and (3) has no
additional earnings for the remainder of the year (July through December 2011). Because this
person does not have earnings above the 2011 monthly exempt amount of $1,180 in any month
from July through December 2011, full benefits are paid for each month of the second half of the
year. This is the case even though this person’s total earnings for 2011 are $60,000, an amount
higher than the 2011 annual exempt amount of $14,160.
The RET May Affect Social Security Benefits Received by Spouses,
Survivors and Other Dependents
There are two ways in which a person who receives Social Security auxiliary benefits (benefits
paid to spouses, survivors, and other dependents) could be affected by the RET. First, benefits
paid to spouses and dependents are affected by the RET when the benefits are based on the record
of a worker beneficiary who is subject to the RET (i.e., the worker beneficiary is below FRA and
has earnings above the exempt amount). This includes benefits paid to spouses who are below
FRA as well as to those who are above FRA. An exception is made for auxiliary benefits paid to
divorced spouses. If a divorced spouse has been divorced from the worker beneficiary for at least
two years, the auxiliary benefit is not affected by the worker beneficiary’s earnings.
Second, benefits paid to spouses (including divorced spouses) and dependents are affected by the
RET when the auxiliary beneficiary is below FRA and has his or her own earnings above the
exempt amount. Auxiliary beneficiaries are subject to the same annual exempt amounts and
benefit reduction rates that apply to worker beneficiaries.
Dually Entitled Beneficiaries
A person receiving spousal benefits who is affected by the RET based on his or her own earnings
above the exempt amount may be simultaneously (dually) entitled to a retired-worker benefit
based on his or her own work record. A dually entitled beneficiary receives his or her own retired-
worker benefit first, plus any spousal benefit remaining after the spousal benefit is reduced based
on the retired-worker benefit. In effect, the total benefit payable to a dually entitled beneficiary is
capped at the higher of the retired-worker benefit and the spousal benefit.
9 The annual exempt amounts are not increased in a year during which no Social Security cost-of-living adjustment is
payable.
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In the case of a dually entitled beneficiary, his or her own earnings above the exempt amount
affect both his or her own retired-worker benefit and the spousal benefit.10 In addition, if the
worker beneficiary on whose record the spousal benefit is based has earnings above the exempt
amount, the spousal benefit is affected by those earnings as well. When a dually entitled
beneficiary attains FRA, each benefit that was affected by the RET (the retired-worker benefit or
the spousal benefit) is adjusted upward to take into account months for which no benefit or a
partial benefit was paid as a result of the RET.
An example is provided later in the report to show how benefits paid to a non-working spouse are
affected when the worker beneficiary has earnings above the exempt amount. In addition, an
example is provided to show how spousal benefits are affected when both the worker beneficiary
and the spouse have earnings above the exempt amount.
Benefits Withheld Under the RET are Restored
Starting at FRA
When a beneficiary has had benefits fully or partially withheld under the RET, benefits “lost” as a
result of the RET are restored starting at FRA. Specifically, the worker’s benefits are
recomputed—and increased—when he or she attains FRA. In the benefit recomputation at FRA,
the actuarial reduction for benefit entitlement before FRA that was applied in the initial benefit
computation is adjusted (the actuarial reduction for early retirement is lessened) to reflect the
number of months the worker received no benefit or a partial benefit as a result of the RET.11
In the initial benefit computation, retirement benefits are reduced for early retirement by a
fraction of the worker’s PIA for each month of entitlement before FRA. Retirement benefits are
reduced by five-ninths of 1% (or 0.0056) of the worker’s PIA for each of the first 36 months of
entitlement before FRA. Stated another way, the actuarial reduction for early retirement is about
6.7% per year for the first three years of entitlement before FRA (i.e., from the age of 62 to 65).
For each additional month of entitlement before FRA (up to 24 months), retirement benefits are
reduced by five-twelfths of 1% (or 0.0042) of the worker’s PIA, for an actuarial reduction of 5%
per year (i.e., from the age of 65 to 67).12
Stated generally, if a worker’s benefits are reduced in the initial benefit computation to reflect x
months of early retirement, and the worker subsequently has benefits withheld under the RET for
y months, the benefit recomputation at FRA will reflect an actuarial reduction for x minus y
months of early retirement, resulting in a higher monthly benefit amount starting at FRA.
As an example, consider a worker who starts receiving Social Security retirement benefits at the
age of 62, although his or her FRA is 66, and he or she has earnings above the RET exempt
10 The dually entitled beneficiary’s earnings above the exempt amount will not affect the retired-worker benefit
received by the worker on whose record the spousal benefit is based.
11 In addition, if a beneficiary continues to work, the Social Security Administration automatically checks the person’s
record each year to determine if the additional earnings will increase his or her monthly benefit. For example, earnings
for 2011 would be included in a recomputation effective January 2012. See Social Security Administration, Program
Operations Manual System (Washington, DC), RS 00605.401, http://policy.ssa.gov/poms.nsf/links/0300605401.
12 Under current law, the maximum reduction for early retirement ranges from 20% for a worker whose FRA is 65 to
30% for a worker whose FRA is 67.
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amount. Because the person claims retirement benefits four years before attaining FRA and has
earnings above the RET threshold, he or she will be subject to both the actuarial reduction for
benefit entitlement before FRA and benefit withholding under the RET. The actuarial reduction is
equal to about 6.7% per year for the first three years of benefit entitlement before FRA and 5%
per year thereafter. In this example, the total actuarial reduction in the person’s initial monthly
benefit is 25% ((6.7% * 3 years) + (5% * 1 year)). In addition, the person continues to work
throughout the four-year period from the age of 62 to 66 and has earnings high enough to cause a
reduction in his or her monthly benefit under the RET.13 If the RET results in a 50% reduction in
Social Security benefits in each of the four years from the age of 62 to 66, the person would have
benefits withheld for six months each year, for a total of 24 months.14 The benefit recomputation
when the person attains FRA will take into account that the person received no benefits for 24
months as a result of the RET. Specifically, the reduction factor for benefit entitlement before
FRA will be adjusted from 48 months to 24 months. Starting at FRA, the person’s monthly
benefit will be increased to reflect an actuarial reduction for benefit entitlement before FRA of
about 13.4% (6.7% * 2 years), instead of 25%. The person receives a higher monthly benefit
because benefits withheld under the RET are restored starting at FRA.
If spousal benefits are withheld under the RET (as discussed in section “The RET May Affect
Social Security Benefits Received by Spouses, Survivors and Other Dependents”), they will be
adjusted upward when the spouse attains FRA (not when the worker beneficiary attains FRA).
For a spouse who has already attained FRA, there is no subsequent adjustment to benefits to take
into account months for which no benefit or a partial benefit was paid as a result of the RET.
Worker Beneficiaries with Earnings in 2006
Table 1 shows the number of worker beneficiaries who had earnings in 2006, the most recent
year for which data are available. About 1.3 million worker beneficiaries who were below FRA
during all or part of 2006 had earnings.
With respect to the data shown in Table 1, it is important to note that not all worker beneficiaries
with earnings are affected by the RET. For example, those who have earnings below the exempt
amount are not affected by the RET. In addition, those who are in the first year of entitlement
may benefit from the “grace year” provision and are not subject to the RET during any months in
which they have earnings that are lower than the monthly RET exempt amount (i.e., the annual
RET exempt amount divided by 12).
13 To simplify the example, it is assumed that the person was born on January 1. Therefore, there is no need to take into
account the different annual exempt amount and benefit reduction rate that apply during the calendar year in which a
beneficiary attains FRA. It is also assumed that the person both works and collects benefits over each full calendar
year, so the “grace year” provision does not apply.
14 For example, a person who has earnings of $26,160 in 2011 and a monthly Social Security benefit of $1,000 (or
$12,000 in annual benefits) would be subject to a 50% reduction in Social Security benefits in 2011 under the RET.
The person’s benefits would be fully withheld for the first six months of 2011.
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Table 1. Number of Worker Beneficiaries with Earnings in 2006
Below FRA
Earnings
Throughout 2006a
Attained FRA in 2006b
$1 - 4,999
356,000
117,500
5,000 - 9,999
226,500
69,900
10,000 - 14,999
213,500
60,900
15,000 - 19,999
72,800
35,800
20,000 - 24,999
39,200
17,100
25,000 - 29,999
17,600
9,700
30,000 - 34,999
10,200
7,800
35,000 - 39,999
6,300
6,000
40,000 - 44,999
5,600
2,100
45,000 - 49,999
3,600
1,700
50,000 - 54,999
2,500
1,500
55,000 - 59,999
2,100
1,300
60,000 - 64,999
1,800
700
65,000 - 69,999
1,300
800
70,000 - 74,999
1,300
500
75,000 - 79,999
1,000
700
80,000 - 84,999
800
600
85,000 - 89,999
900
400
90,000 - 99,999
900
800
100,000 or more
5,400
3,100
Total with Earnings
969,300
338,900
Sources: Social Security Administration, Office of Research, Evaluation and Statistics: 2007 1 Percent
Continuous Work History Sample and 2006 Employee and Employer File. Data provided by the Social Security
Administration to the Congressional Research Service on February 24, 2011.
Note: Table includes individuals who were awarded retired-worker benefits by December 2005.
a. The exempt amounts for persons who were below FRA throughout 2006 were $12,480 annual y and
$1,040 monthly.
b. The exempt amounts for persons who attained FRA in 2006 were $33,240 annual y and $2,770
monthly.
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Application of the Retirement Earnings Test
Table 2 illustrates the application of the RET to a single person who receives benefits based on
his or her own work record. The table illustrates the effect of the RET on single worker
beneficiaries in two different age groups, reflecting the application of different annual exempt
amounts and benefit reduction rates under the RET for beneficiaries who will remain below FRA
throughout the calendar year and beneficiaries who will attain FRA during the calendar year. The
two single worker beneficiaries in the examples have the following characteristics:
Single Worker Beneficiary Who is Below FRA Throughout the Calendar Year. This example
shows a worker beneficiary with a monthly benefit amount of $2,000 (this amount has already
been adjusted for retirement before FRA) and $40,000 of earnings in 2011. Because this worker
beneficiary is below FRA throughout the calendar year, he or she is subject to a $1 reduction in
benefits for each $2 of earnings above the annual exempt amount of $14,160 in 2011.
Single Worker Beneficiary Who Will Attain FRA During the Calendar Year. This example
shows a worker beneficiary with a monthly benefit amount of $2,000 (this amount has already
been adjusted for retirement before FRA) and $40,000 of earnings in 2011. Because this worker
beneficiary will attain FRA during the calendar year, he or she is subject to a $1 reduction in
benefits for each $3 of earnings above the annual exempt amount of $37,680 in 2011.
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Social Security Retirement Earnings Test: How Earnings Affect Benefits
Table 2. Application of the Retirement Earnings Test to a Single Worker Beneficiary
with Earnings Above the Annual Exempt Amount, 2011
Worker Beneficiary is Below
Worker Beneficiary Will
FRA Throughout
Attain FRA During
Step
Calendar Year
Calendar Year
1. Social Security monthly benefit
$2,000
$2,000
2. Calculation of earnings above annual
exempt amount
Earnings
in
2011
$40,000
$40,000
RET exempt amount in 2011
$14,160
$37,680
Earnings above annual exempt
$25,840 $2,320
amount
3. RET charge (= one-half of earnings
above exempt amount for beneficiary
below FRA, or one-third of earnings
$12,920 $773
above exempt amount for beneficiary
who will attain FRA during calendar year)
4. Application of the RET. The benefit
paid each month equals the monthly
benefit amount of $2,000 minus the
remaining balance of the RET charge. The
RET charge for a given month cannot
exceed the benefit for that month, but it
may reduce the benefit to zero in some
months. A partial benefit is paid if the
remaining RET balance is less than the
monthly benefit amount.
January
monthly
benefit
$0a $1,227b
February through June monthly
$0a $2,000
benefits
July monthly benefit
$1,080b $2,000
August through December
$2,000
$2,000, plus increase resulting
monthly benefits: ful benefits paid
from benefit recomputation at
FRA to take into account months
for which no benefit or a partial
benefit was paid due to the RET
Source: Congressional Research Service.
Notes: In this example, it is assumed that the worker beneficiary receives benefits based on his or her own
work record only. The starting benefit amounts are assumed to include reductions for retirement before FRA,
and to exclude other reductions that may apply. The example has been constructed so that the year” provision
does not apply, by assuming that the beneficiary both works and col ects benefits over the ful calendar year. (See
“Grace Year” section.) Alternatively, under the grace year provision, a beneficiary who is in the first year of
entitlement is not subject to the RET in any month during which he or she has earnings that do not exceed the
monthly exempt amount (the annual exempt amount divided by 12), regardless of the beneficiary’s total amount
of earnings for the year.
a. No benefit is paid this month because the beneficiary’s RET balance is larger than the monthly benefit
amount, so the RET charge for this month is equal to the benefit amount.
b. A partial benefit is paid this month because the beneficiary’s RET balance is smal er than the monthly benefit
amount.
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Social Security Retirement Earnings Test: How Earnings Affect Benefits
As discussed above, certain auxiliary benefits (benefits paid to the worker’s family members such
as a spouse or children) are subject to withholding under the RET if either the worker beneficiary
or the auxiliary beneficiary has earnings above the exempt amount. When the worker beneficiary
has earnings above the exempt amount, these earnings are charged against the total family
benefit, that is, the total of benefits paid to the worker beneficiary and auxiliary beneficiaries who
receive benefits based on the worker beneficiary’s record. (When the auxiliary beneficiary has
earnings above the exempt amount, these earnings are charged only against the auxiliary
beneficiary’s benefit, as discussed below.)
Table 3 provides an example of a worker beneficiary who is entitled to a monthly retirement
benefit of $2,000 (this amount has already been adjusted for retirement before FRA). In addition,
the worker beneficiary’s spouse and child are each entitled to a monthly auxiliary benefit of
$1,000 based on the worker beneficiary’s record. Therefore, the total monthly family benefit is
$4,000.15
If the worker beneficiary is below FRA and has earnings above the exempt amount, reductions
under the RET are pro-rated among family members in proportion to each family member’s
original entitlement amount, before any adjustment for the family maximum or for retirement
before FRA.16 The total amount of the reduction remains the same, but the reduction is pro-rated
across two or more people. If reductions under the RET are large enough to exceed the total
family benefit for one or more months, no benefits are payable to the family for those months. If a
partial benefit is payable for a given month, reflecting a reduction under the RET for that month
that is less than the total family benefit, the partial benefit is pro-rated among family members.
In Table 3, benefits for the illustrative family are shown under two cases of the RET. The first
case shows a family headed by a worker beneficiary who is below FRA throughout the calendar
year and is subject to a benefit reduction under the RET equal to one-half of earnings above the
lower exempt amount of $14,160 in 2011. The second case shows a family headed by a worker
beneficiary who will attain FRA during the calendar year and is subject to a benefit reduction
under the RET equal to one-third of earnings above the higher exempt amount of $37,680 in
2011.
15 A family’s total benefits are subject to a cap known as the “family maximum,” as discussed in Appendix B. For
purposes of illustration, this example is simplified and does not include the family maximum.
16 Social Security Administration, Program Operations Manual System (Washington, DC), RS 02501.110,
http://policy.ssa.gov/poms.nsf/links/0302501110.
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Table 3. Application of the Retirement Earnings Test to a Family Consisting of a
Worker Beneficiary with Earnings Above the Annual Exempt Amount and Auxiliary
Beneficiaries (a Spouse and a Child), 2011
Worker Beneficiary
is Below FRA
Worker Beneficiary
Throughout
Will Attain FRA
Step
Calendar Year
During Calendar Year
1. Social Security unreduced total monthly family benefit
$4,000
$4,000
of which:
of which:
of which:
Worker beneficiary’s unreduced benefit
$2,000
$2,000
Spouse’s unreduced benefit
$1,000
$1,000
Child’s unreduced benefit
$1,000
$1,000
2. Calculation of worker beneficiary’s earnings above the
annual exempt amount
Worker beneficiary’s earnings in 2011
$40,000
$40,000
RET exempt amount in 2011
$14,160
$37,680
Worker beneficiary’s earnings above the annual
$25,840 $2,320
exempt amount
3. RET charge (= one-half of earnings above the exempt
$12,920 $773
amount for worker beneficiary who is below FRA, or
one-third of earnings above the exempt amount for worker
beneficiary who will attain FRA during calendar year)
4. Application of the RET to the total family benefit. The
total family benefit paid each month equals the monthly
family benefit amount of $4,000 minus the remaining
balance of the RET charge, where the RET charge is
pro-rated across family members by original benefit amount
(shown in notes to the table). The RET charge for a given
month cannot exceed the total family benefit for that
month, but it may reduce the family benefit to zero in some
months. A partial benefit is paid if the remaining RET
balance is less than the monthly family benefit amount.
January total monthly family benefit
$0a $3,227b
February and March total monthly family benefit
$0a $4,000
April total monthly family benefit
$3,080c $4,000
May through December total monthly family benefit
$4,000
$4,000, plus increase
resulting from benefit
recomputation at FRA to
take into account months
for which no benefit or a
partial benefit was paid
due to the RET
Source: Congressional Research Service.
Notes: In this example, it is assumed that the worker beneficiary receives benefits based on his or her own
work record only, and that the spouse and child beneficiaries receive auxiliary benefits based on the worker
beneficiary’s record only. The starting benefit amounts are assumed to include reductions for retirement before
FRA, and to exclude other benefit reductions that may apply, such as those related to receipt of a non-covered
pension and the maximum family benefit amount. The example has been constructed so that the “grace year”
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Social Security Retirement Earnings Test: How Earnings Affect Benefits
provision does not apply, by assuming that the beneficiary both works and col ects benefits over the ful calendar
year. (See “Grace Year” section.) Alternatively, under the grace year provision a beneficiary who is in the first
year of entitlement is not subject to the RET in any month during which he or she has earnings that do not
exceed the monthly exempt amount (the annual exempt amount divided by 12), regardless of the beneficiary’s
total amount of earnings for the year.
a. No benefit is paid this month because the beneficiary’s RET balance is larger than the monthly benefit
amount, so the RET charge for this month is equal to the benefit amount.
b. A partial benefit is paid to each family member in January because the RET balance is smal er than the total
family benefit amount for the month. The RET balance of $773 is pro-rated and charged against all
beneficiaries in proportion to their original entitlement amounts. One-half of the RET charge ($387) is
applied to the worker beneficiary and one-fourth ($193) each is applied to the spouse and child. Therefore
the worker beneficiary receives a January benefit of $1,613 ($2,000 - $387) and the spouse and child each
receive January benefits of $807 ($1,000 - $193).
c. A partial benefit is paid to each family member in April because the remaining RET balance is smaller than
the total family benefit amount for the month. The remaining RET balance of $920 is pro-rated and charged
against all beneficiaries in proportion to their original entitlement amounts. One-half of the RET charge
($460) is applied to the worker beneficiary and one-fourth ($230) each is applied to the spouse and child.
Therefore the worker beneficiary receives an April benefit of $1,540 ($2,000 - $460) and the spouse and
child each receive April benefits of $770 ($1,000 - $230).
The preceding examples illustrate cases in which the worker beneficiary has earnings above the
exempt amount. In some cases, both the worker beneficiary and an auxiliary beneficiary (such as
a spouse) may have earnings above the exempt amount. Table 4 shows an example of a couple in
which (1) one member, the worker beneficiary, receives a retired-worker benefit based on his or
her own work record, and (2) one member, the auxiliary beneficiary, receives a spousal benefit
only. Both beneficiaries are assumed to be below FRA throughout the calendar year and to have
earnings above the RET exempt amount.17 Because neither beneficiary will attain FRA during the
calendar year, both are subject to the same RET exempt amount and benefit reduction rate.
Benefit reductions under the RET are applied to the couple in the following order:18
• First, the worker beneficiary’s RET charge is pro-rated and applied to both the
worker beneficiary’s retired-worker benefit and the auxiliary beneficiary’s
spousal benefit.19
• Second, if there is a balance remaining on the spousal benefit (if the spousal
benefit has not been reduced to zero), the auxiliary beneficiary’s RET charge is
applied to (and further reduces) his or her spousal benefit only (the auxiliary
beneficiary’s earnings above the RET exempt amount do not affect the worker
beneficiary’s retired-worker benefit).
17 An example of such a couple would be a worker beneficiary who receives a retired-worker benefit based on his or
her own work record and an auxiliary beneficiary (a spouse) who is currently working but does not receive his or her
own retired-worker benefit. This may be the case, for example, because the auxiliary beneficiary (the spouse) does not
have enough Social Security-covered employment to qualify for a retirement benefit.
18 20 C.F.R. § 404.434(b)(3).
19 If the auxiliary beneficiary in this example (spouse #2) were dually entitled to a retired-worker benefit based on his
or her own work record and a spousal benefit, the worker beneficiary’s RET charge would apply only to the spousal
benefit, and not the retired-worker benefit, received by spouse #2.
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Table 4. Application of the Retirement Earnings Test to a Couple Consisting of a
Worker Beneficiary and an Auxiliary (Spousal) Beneficiary, Both of Whom Have
Earnings Above the Annual Exempt Amount and Are Below FRA
Throughout the Calendar Year, 2011
Spouse #1:
Spouse #2:
Step
Worker Beneficiary
Auxiliary Beneficiary
1. Social Security retired-worker benefit, based on own
$2,000
work record
2. Social Security auxiliary (spousal) benefit
$1,000
3. Calculation of earnings above annual exempt amount
Earnings
in
2011
$25,000
$25,000
RET exempt amount in 2011
$14,160
$14,160
Earnings above annual exempt amount
$10,840
$10,840
4. RET charge (= one-half of earnings above the exempt
$5,420 $5,420
amount for both worker beneficiary and auxiliary
beneficiary, both of whom are below FRA throughout the
calendar year)
5. Application of the RET
January benefit: Worker beneficiary’s RET charge
$0 $0
is applied to total family benefits of $3,000.
February benefit: Balance of worker beneficiary’s
$387 $0
RET charge ($2,420 = $5,420 - $3,000) is pro-
rated between worker beneficiary and auxiliary
beneficiary in proportion to their original
entitlement amount (a ratio of two to one):
$1,613 is applied to the worker beneficiary and
$807 is applied to the auxiliary beneficiary. In
addition, $193 of auxiliary beneficiary’s RET
charge is applied to the auxiliary beneficiary’s
benefit only, reducing it to zero.
March through July monthly benefits: Worker
$2,000 $0
beneficiary receives ful monthly benefits.
Auxiliary beneficiary’s monthly benefit is reduced
to zero by his or her own RET charge (worker
beneficiary is not affected).
August monthly benefit: Worker beneficiary
$2,000 $773
receives full monthly benefit. Auxiliary
beneficiary’s RET balance of $227 ($5,420 -
$5,193) is charged to his or her benefit.
September through December monthly benefits:
$2,000 $1,000
ful benefits paid to both spouses
Source: Congressional Research Service.
Notes: In this example, both beneficiaries are assumed to be below FRA throughout the calendar year and
therefore are subject to the same RET exempt amount and benefit reduction rate. It is assumed that the worker
beneficiary receives benefits based on his or her own work record only, and that the auxiliary beneficiary
(spouse) receives benefits based on the worker beneficiary’s record only. The starting benefit amounts are
assumed to include reductions for retirement before FRA, and to exclude other benefit reductions that may
apply, such as those related to receipt of a non-covered pension. The example has been constructed so that the
“grace year” provision does not apply, by assuming that the beneficiaries both work and col ect benefits over the
full calendar year. (See “Grace Year” section.) Alternatively, under the grace year provision, a beneficiary who is
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in the first year of entitlement is not subject to the RET in any month during which he or she has earnings that
do not exceed the monthly exempt amount (the annual exempt amount divided by 12), regardless of the
beneficiary’s total amount of earnings for the year.
More complex situations may exist in which, for example, a person is dually entitled to a retired-
worker benefit (based on his or her own work record) and a spousal benefit (based on a different
work record) and the person has earnings above the exempt amount. In the case of a dually-
entitled beneficiary, his or her earnings above the exempt amount affect both his or her own
retired-worker benefit and the spousal benefit that he or she receives. The dually entitled
beneficiary’s earnings above the exempt amount do not affect the retired-worker benefit received
by his or her spouse because that benefit is based on the spouse’s work record.
Table 5 summarizes the applicability of the RET to worker beneficiaries and auxiliary
beneficiaries when either type of beneficiary has earnings above the exempt amount.
Table 5. Applicability of the Retirement Earnings Test to Worker Beneficiaries
and Auxiliary Beneficiaries
Worker Beneficiary Has
Auxiliary Beneficiary Has
Earnings Above the
Earnings Above the
Beneficiary Type
Exempt Amount
Exempt Amount
Worker Beneficiary
Worker beneficiary’s own benefit is
Only the auxiliary benefit is reduced,
reduced.
not the worker beneficiary’s benefit.
Auxiliary Beneficiary: Spouse
Auxiliary benefits to spouses are
Only the auxiliary benefit is reduced,
reduced for the worker beneficiary’s
not the worker beneficiary’s benefit.
earnings above the exempt amount,
which are charged against the total
family benefit.
Auxiliary Beneficiary: Divorced
A divorced spouse’s benefit is not
Only the auxiliary benefit is reduced,
Spouse
reduced for the worker beneficiary’s
not the worker beneficiary’s benefit.
earnings above the exempt amount if
the couple has been divorced at least
two years.
Auxiliary Beneficiary: Child
Auxiliary benefits to children are
Only the auxiliary benefit is reduced,
reduced for the worker beneficiary’s
not the worker beneficiary’s benefit.
earnings above the exempt amount,
which are charged against the total
family benefit.
Auxiliary Beneficiary: Mother or Not applicable (worker beneficiary is The mother’s or father’s benefit is
Father with Qualifying Child in
deceased).
reduced.
Care (child under age 16 or
disabled)
Auxiliary Beneficiary:
Not applicable (worker beneficiary is The widow(er)’s benefit is reduced.
Widow(er)
deceased).
Auxiliary Beneficiary: Parent
Not applicable (worker beneficiary is The parent’s benefit is reduced.
deceased).
Source: Social Security Administration, Social Security Handbook, revised November 19, 2007,
http://www.ssa.gov/OP_Home/handbook/handbook.18/handbook-1806.html.
Notes: A worker beneficiary’s spouse or child who is receiving mother’s/father’s benefits or child’s benefits
based on a third person’s work record is deemed entitled on the worker beneficiary’s record. Therefore, the
worker beneficiary’s earnings above the exempt amount would be charged not only against his or her own
benefits and the benefits of those entitled on his or her record, but also against the spouse’s or child’s benefits
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Social Security Retirement Earnings Test: How Earnings Affect Benefits
that are based on a third person’s work record. As noted previously, disabled beneficiaries are subject to
different rules and limitations regarding earnings.
Policy Issues
Policymakers have asked questions about the RET’s impact on labor supply and on the timing of
Social Security benefit claims. Some argue that the RET is perceived as a “tax” on work effort,
and that it induces workers to work fewer hours, or even to retire completely from the workforce.
Another line of enquiry is whether the RET causes workers to delay claiming Social Security
benefits. Both of these effects could have important implications for the retirement security of
workers, their spouses and their survivors.
Quantitative studies have found mixed evidence concerning the RET’s impact on work hours,
retirement and the timing of Social Security benefit claims. Although the RET has been found to
have a substantial effect on the labor supply of workers at or just above the annual RET threshold,
the impact on workers with higher wages and salaries is more ambiguous. There is somewhat
stronger evidence that the RET causes workers to delay claiming Social Security benefits.
The RET and Work Incentives
The impact of the RET on work hours varies by income level. At wages and salaries that are at or
just above the annual RET threshold, the RET may encourage workers to work fewer hours, to
keep wages or salaries just under the RET threshold. This effect is known as “bunching” or
“clustering” under the RET threshold. A 1999 study found that a subset of workers do cluster at
earnings levels just below the RET threshold.20
At higher earnings levels, the RET’s impact on work hours is more ambiguous. Some workers
perceive the RET as a tax on work effort (despite the recomputation of benefits at FRA).
Moreover, other workers who are aware of the recomputation may place a relatively low value on
future income. To the extent that the RET is perceived as a tax on earnings, it may induce some
workers to reduce their work hours or even to retire completely from the workforce. Other
workers, however, may respond to the RET reduction to Social Security benefits by working
more, not fewer, hours to reach their income goals or requirements. For these workers,
eliminating the RET would increase total income (income from labor plus income from Social
Security). This has led some to argue that eliminating the RET would benefit some higher earners
because the additional Social Security benefits that would become available would permit higher
earners, if they wished, to reduce their work hours.
One study of the period from 1973 to 1998 found that the RET had little or no effect on the
aggregate work hours and earnings of men aged 62 and older, although there is somewhat
stronger evidence that the RET had an impact on women’s earnings (no evidence was found for
an impact on women’s work hours).21 However, a study of Social Security beneficiaries’ response
20 Leora Friedberg, The Labor Supply Effects of the Social Security Earnings Test, National Bureau of Economic
Research, Working Paper No. 7200, Cambridge, MA, June 1999, http://www.nber.org/papers/w7200.
21 Jonathan Gruber and Peter Orszag, Does the Social Security Earnings Test Affect Labor Supply and Benefits
Receipt?, National Bureau of Economic Research, Working Paper No. 7923, Cambridge, MA, September 2000,
http://www.nber.org/papers/w7923.
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to the 2000 removal of the RET for beneficiaries at or above FRA found that, when workers are
segmented by earnings level, fairly large effects on earnings are found, with the effects on
earnings concentrated just below and above the RET threshold. (The study did not examine how
work hours were affected by the 2000 change in the RET.)22 Research has not found the RET to
have a large effect on labor force participation, that is, a worker’s decision to retire or remain in
the workforce. This is perhaps in part because the RET is a relatively small part of the larger
retirement decision that includes other factors such as pension rules and the worker’s health, and
also because it is difficult to separate the RET’s impact from the trend toward later retirement that
is already under way.
The RET and Incentives to Claim Social Security Benefits
Because the RET applies to persons who are younger than FRA, it may discourage persons below
the FRA from claiming benefits. As noted earlier, some workers perceive the RET as a “tax” on
benefits received before FRA, even though the recomputation of benefits at FRA (which results in
a higher monthly benefit starting at FRA) allows the worker to recoup benefits withheld under the
RET.
The quantitative evidence that the RET has an impact on the decision concerning when to claim
Social Security benefits is somewhat stronger than the quantitative evidence for the RET’s impact
on work and earnings. For example, the Gruber and Orszag study that examined persons aged 62
and older during the period from 1973 to 1998 estimated that a $1,000 increase in the RET
threshold could increase the share of men aged 62 and older who receive Social Security benefits
by 0.7% to 1.6%, while eliminating the RET could increase that share by 5.2% to 13.5%.23 A
more recent study that examined the 2000 elimination of the RET for men and women at or above
FRA found a 2 to 5 percentage point increase in benefit claims among men and women aged 65 to
69, and a 3 to 5 percentage point increase among men and women who reach the age of 65.24
The RET, Retirement Security and Early Benefit Claims
Some argue that, to the extent the RET causes some workers to delay claiming Social Security
benefits, this can be beneficial for the worker as well as for his or her spouse or survivor.
Claiming Social Security benefits before the FRA can reduce a worker’s Social Security benefit
amount in two ways, as noted earlier: (1) through the RET, although when the worker attains FRA
his or her benefits are recomputed and a higher monthly benefit amount is payable starting at
FRA; and (2) through the actuarial reduction for early retirement which, although it is intended to
be actuarially fair to the individual over his or her expected lifetime, causes a permanent
reduction to the worker’s monthly Social Security benefit amount.
22 Jae G. Song and Joyce Manchester, “How Have People Responded to Changes in the Retirement Earnings Test in
2000,” Social Security Bulletin, vol. 67, no. 1 (2007), http://www.ssa.gov/policy/docs/ssb/v67n1/v67n1p1.pdf.
23 Jonathan Gruber and Peter Orszag, Does the Social Security Earnings Test Affect Labor Supply and Benefits
Receipt?, National Bureau of Economic Research, Working Paper No. 7923, Cambridge, MA, September 2000,
http://www.nber.org/papers/w7923.
24 Jae G. Song and Joyce Manchester, “How Have People Responded to Changes in the Retirement Earnings Test in
2000,” Social Security Bulletin, vol. 67, no. 1 (2007), http://www.ssa.gov/policy/docs/ssb/v67n1/v67n1p1.pdf.
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As discussed, the RET applies to spousal benefits. (See section “The RET May Affect Social
Security Benefits Received by Spouses, Survivors and Other Dependents.”) Spousal benefits that
have been reduced by the RET are restored starting when the spouse attains FRA. Spousal
benefits are not restored, however, when the RET is applied to the benefits of a spouse who is
already at or above FRA. (See “Benefits Withheld Under the RET are Restored Starting at FRA.”)
Survivors’ benefits may be permanently affected by the worker beneficiary’s decision to claim
benefits before FRA. Under a provision in the Social Security Act called the widow(er)’s limit
provision, the widow(er)’s benefit may be reduced if the widow(er)’s benefit payable on the
worker’s record exceeds the benefit the worker was receiving (including any actuarial reduction
for early retirement that may have reduced the worker’s benefit) before his or her death.25 If a
worker has benefits withheld under the RET and he or she dies before attaining FRA (when the
worker’s benefit would have been recomputed), for purposes of determining the limit on the
widow(er)’s benefit, the worker’s benefit is recomputed at the time of the worker’s death to take
into account months for which no benefit or a partial benefit was paid as a result of the RET.
Elderly widows, in particular, may face reduced living standards if their spouses claim benefits
before FRA, because of the actuarial reduction to benefits described above. Women tend to
outlive their husbands and are therefore more likely than men to receive Social Security
survivors’ benefits. In addition, individuals and couples are more likely to deplete other assets
later in retirement, leaving the couple or surviving spouse more reliant on Social Security.
Other Policy Issues
Some argue that eliminating the RET would have positive budgetary and economic effects
because people would work more and pay more Social Security payroll and other taxes. The
effect of the RET on labor supply is probably modest, however, as discussed above.
A common complaint among beneficiaries affected by the RET is that they are being denied a
benefit they have “bought and paid for.” A related argument is that the RET resembles a form of
needs testing, making benefit receipt contingent on demonstrating “need” for this earned benefit.
Supporters of the RET counter that Social Security is intended as a form of insurance against the
risks of retirement and disability; just as the program does not pay disability benefits to those who
are not disabled, it should not pay retirement benefits to those who are not retired.
The recomputation of benefits at FRA to restore benefits withheld under the RET is not widely
known or understood. As noted previously, if a beneficiary has benefits withheld under the RET,
his or her benefit is recomputed when he or she attains FRA to take into account months for
which no benefit or a partial benefit was paid due to the RET. The recomputation results in a
higher monthly benefit amount starting at FRA and allows the worker to recoup the value of any
benefits “lost” under the RET, assuming he or she lives to average life expectancy. As a result,
some observers argue that the RET should not be perceived as a “tax.”26 However, for some
25 Under the widow(er)’s limit provision, the widow(er)’s benefit is limited to the higher of: (1) the benefit the worker
would be receiving if he or she were still alive and (2) 82.5% of the worker’s PIA. For more information, see David A.
Weaver, The Widow(er)’s Limit Provision of Social Security, Social Security Administration, Office of Policy,
Research, Evaluation and Statistics, Working Paper Series Number 92, June 2001.
26 Adam Paul, “The Tax That Wasn't,” The American: The Journal of the American Enterprise Institute, December 17,
2009, http://blog.american.com/?p=8363.
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workers with shorter lifespans, the recovery of benefits may be incomplete. Conversely, for those
who live longer than average, the recomputation may result in higher lifetime benefits that more
than make up for the initial benefit reductions under the RET. Because life expectancy is linked to
income, some argue that the RET may be regressive on a lifetime basis.27
Critics of the RET argue that it discriminates against claimants who must continue working to
supplement their benefits. In contrast, claimants with no earnings who have other forms of
income, such as private pensions or investment income, can receive full Social Security benefits.
Supporters of the RET counter that eliminating the RET would provide a bonus to people who are
fortunate enough to be able to continue working after becoming entitled to retirement benefits,
and the additional Social Security benefits may allow or encourage some individuals to reduce
their work hours.
Financial Effect of Repealing the RET on the Social
Security Trust Fund
Under current law, the RET has no major effect on Social Security financing over the long run
because, on average, the RET has “no significant effect” on lifetime benefits.28 Therefore, the
Social Security Administration’s Office of the Chief Actuary (OCACT) estimates that elimination
of the RET for individuals aged 62 or older would have no major effect on Social Security’s
projected long-range financial outlook.29
In the short run, however, OCACT estimates that elimination of the RET would have a negative
effect on the Social Security trust fund in the amount of $81 billion from 2012 to 2018. The trust
fund would experience a projected cash-flow deficit of $12.1 billion in 2012, and a projected
cash-flow deficit of $10.4 billion in 2018. OCACT notes: “In the first several years after
elimination of the retirement earnings test, benefit payments are projected to increase
substantially, because benefits are paid under the proposal where such payments would be
withheld, or the individual would have not applied for benefits yet, under current law.”30
In summary, OCACT notes that the projected financial effects for the Social Security program of
eliminating the RET are due to “(1) some individuals no longer having their benefits withheld,
(2) some individuals who would apply for Social Security benefits earlier because of the earnings
test elimination, and (3) a small net increase in earnings for individuals currently subject to the
earnings test.”31
27 Jonathan Gruber and Peter Orszag, What To Do About The Social Security Earnings Test?, Center for Retirement
Research, Boston, MA, July 1999, p. 5, http://crr.bc.edu/images/stories/Briefs/ib_1.pdf?phpMyAdmin=
43ac483c4de9t51d9eb41.
28 Social Security Administration, Office of the Chief Actuary, Estimated Long-Range OASDI Financial Effect of
Repealing the Retirement Earnings Test at Ages 62 and Later, April 30, 2010, p. 1 (hereinafter SSA Cost Estimate for
Repeal of the RET).
29 SSA Cost Estimate for Repeal of the RET. The estimate assumes that the RET would be eliminated starting in 2012
and is based on the intermediate assumptions of the 2009 Social Security Trustees Report. OCACT estimates that the
policy change would reduce Social Security’s projected long-range (average 75-year) funding shortfall from an amount
equal to 2.00% of taxable payroll to an amount equal to 1.99% of taxable payroll.
30 SSA Cost Estimate for Repeal of the RET, p. 2.
31 SSA Cost Estimate for Repeal of the RET, p. 1.
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Appendix A. Computation of the Social Security
Retired-Worker Benefit
To be eligible for a Social Security retired-worker benefit, a person generally needs 40 earnings
credits, or 10 years of Social Security-covered employment (among other requirements). A
worker’s initial monthly benefit is based on his or her 35 highest years of earnings which are
indexed to historical wage growth (earnings through the age of 60 are indexed; earnings thereafter
are counted at nominal value). The 35 highest years of indexed earnings are divided by 35 to
determine the worker’s career-average annual earnings. The resulting amount is divided by 12 to
determine the worker’s average indexed monthly earnings (AIME). If a worker has fewer than 35
years of earnings in covered employment, years of no earnings are entered as zeros.
The worker’s basic benefit amount (i.e., before any adjustments for early or delayed retirement) is
the primary insurance amount (PIA). The PIA is determined by applying a formula to the AIME
as shown in Table A-1. First, the AIME is sectioned into three brackets, or levels, of earnings.
Three progressive factors—90%, 32%, and 15%—are applied to the three different brackets of
AIME. The three products derived from multiplying each factor and bracket of AIME are added
together. For workers who become eligible for retirement benefits (i.e., those who attain age 62),
become disabled, or die in 2011, the PIA is determined as shown in the example in Table A-1.
Table A-1. Computation of a Worker’s Primary Insurance Amount in 2011
Based on an Illustrative AIME of $5,000
PIA for Worker with an
Factors
Three Brackets of AIME (2011)
Illustrative AIME of $5,000
90%
first $749 of AIME, plus
$674.10
32%
AIME over $749 and through $4,517,
$1,205.70
plus
15% AIME
over
$4,517
$72.40
Total (Worker’s PIA)
$1,952.20
Source: Congressional Research Service.
Adjustment to Benefits Claimed Before or After FRA
A worker’s initial monthly benefit is equal to his or her PIA if he or she begins receiving benefits
at FRA (i.e., FRA is the earliest age at which full (unreduced) retirement benefits are payable). A
worker’s initial monthly benefit will be less than his or her PIA if he or she begins receiving
benefits before FRA, and it will be greater than his or her PIA if he or she begins receiving
benefits after FRA. As noted previously, FRA ranges from the age of 65 to 67 depending on the
person’s year of birth.
Retirement benefits are reduced by five-ninths of 1% (or 0.0056) of the worker’s PIA for each
month of entitlement before FRA up to 36 months, for a reduction of about 6.7% a year. For each
month of benefit entitlement before FRA in excess of 36 months, retirement benefits are reduced
by five-twelfths of 1% (or 0.0042), for a reduction of 5% a year. Workers who delay filing for
benefits until after FRA receive a delayed retirement credit (DRC). The DRC applies beginning
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with the month the worker attains FRA and ending with the month before he or she attains the age
of 70. Starting in 1990, the DRC increased until it reached 8% per year for workers born in 1943
or later (i.e., starting with those who attained age 62 in 2005 or age 66 in 2009).32
32 Other benefit adjustments may apply, such as those related to simultaneous entitlement to more than one type of
Social Security benefit, receipt of a pension from work that was not covered by Social Security (a non-covered
pension), the Social Security maximum family benefit, and the Social Security Retirement Earnings Test which is the
focus of this report. For more information on the various benefit adjustments, see House Ways and Means Committee,
2008 Green Book, Section 1, Social Security: The Old-Age, Survivors, and Disability Insurance (OASDI) Programs,
pp. 1-59 to 1-68, http://waysandmeans.house.gov/media/pdf/111/ssgb.pdf.
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Appendix B. Social Security Auxiliary Benefits
(Benefits for the Worker’s Family Members)
Social Security provides benefits to eligible family members of a retired, disabled or deceased
worker. Benefits payable to family members are equal to a specified percentage of the worker’s
PIA, subject to a maximum family benefit amount.
Social Security provides a monthly benefit to the spouse or divorced spouse (if the marriage
lasted 10 or more years) of an entitled retired or disabled worker equal to 50% of the worker’s
PIA.33 A monthly survivor benefit equal to 100% of the deceased worker’s PIA is payable to the
surviving spouse or surviving divorced spouse of a worker who was fully insured at the time of
death.34 Benefits for spouses, divorced spouses and surviving spouses are reduced if claimed
before FRA. In addition, these benefits are reduced or fully offset if the beneficiary receives his
or her own Social Security retired-worker benefit or a pension from a job that was not covered by
Social Security (such as certain federal, state or local government jobs).
The child of a disabled or retired worker is eligible for 50% of the worker’s PIA. The child of a
deceased worker is eligible for 75% of the worker’s PIA.35 Social Security also provides a
monthly mother’s or father’s benefit, equal to 75% of the worker’s PIA, to a surviving parent of
any age who cares for the deceased worker’s child, when that child is under the age of 16 or
disabled.
Table B-1 provides a summary of Social Security auxiliary benefits for the family of a retired,
disabled or deceased worker, including eligibility requirements related to age and other factors.
Maximum Family Benefit Amount
The total amount of benefits payable to a family based on a retired or deceased worker’s record is
capped by the maximum family benefit amount. The maximum family benefit varies from 150%
to 188% of the retired or deceased worker’s PIA, and the maximum family benefit cannot be
exceeded regardless of the number of beneficiaries entitled to benefits on the worker’s record. If
the sum of all benefits based on the worker’s record exceeds the maximum family benefit
amount, each dependent’s or survivor’s benefit is reduced in equal proportion to bring the total
amount of benefits within the family maximum. For the family of a worker who attains age 62 in
2011, or dies in 2011 before attaining age 62, the total amount of benefits payable is limited to
• 150% of the first $957 of PIA, plus
• 272% of PIA over $957 and through $1,382, plus
33 The qualifying spouse must be at least age 62 or have a qualifying child (a child who is under age 16 or disabled) in
his or her care. A spouse’s benefit is reduced if he or she begins receiving benefits before FRA.
34 The surviving spouse must be at least age 60 (or at least age 50 if disabled) and must not have remarried before age
60 (or age 50 if disabled).
35 The child must be (1) under age 18; or (2) a full-time elementary or secondary student under age 19; or (3) a disabled
person aged 18 or older whose disability began before age 22.
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• 134% of PIA over $1,382 and through $1,803, plus
• 175% of PIA over $1,803.
The dollar amounts in the maximum family benefit formula are indexed to average wage growth,
as in the primary benefit formula. A separate maximum family benefit formula applies to the
family of a worker who is entitled to disability benefits.
Table B-1. Social Security Auxiliary Benefits
Basic Benefit Amount
Basis for Entitlement
Basic Eligibility Requirements
Before Any Adjustments
Spouse
At least age 62
50% of worker’s PIA
The worker on whose record benefits
are based must be receiving benefits.
Divorced Spouse
At least age 62
50% of worker’s PIA
(if divorced individual was married to
Generally, the worker on whose
the worker for at least 10 years
record benefits are based must be
before the divorce became final and is receiving benefits. However, a divorced
currently unmarried)
spouse may receive benefits on the
worker’s record if the worker is eligible
for (but not receiving) benefits and the
divorce has been final for at least two
years.
Widow(er) & Divorced Widow(er)
At least age 60
100% of worker’s PIA
(if divorced individual was married to
the worker for at least 10 years
before the divorce became final and
did not remarry before age 60)
Disabled Widow(er) & Divorced
At least age 50
100% of worker’s PIA
Disabled Widow(er)
The qualifying disability must have
(if divorced individual was married to
occurred:
the worker for at least 10 years
before the divorce became final and
(1) before or within seven years of the
did not remarry before age 50)
worker’s death; or
(2) within seven years of having been
previously entitled to benefits on the
worker’s record as a widow(er) with a
child in his or her care; or
(3) within seven years of having been
previously entitled to benefits as a
disabled widow(er) that ended because
the qualifying disability ended
(whichever is later).
Mothers and Fathers
Surviving parent of any age who cares
75% of deceased worker’s PIA
for the deceased worker’s child, when
that child is either under the age of 16
(subject to the maximum family
or disabled. Eligibility generally ceases if
benefit amount)
the surviving mother or father
remarries.
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Basic Benefit Amount
Basis for Entitlement
Basic Eligibility Requirements
Before Any Adjustments
Parents
At least age 62 and has not married
If one parent is entitled to
since the worker’s death. The parent
benefits: 82.5% of deceased
must have been receiving at least
worker’s PIA
one-half of his or her support from the
worker at the time of the worker’s
If two parents are entitled to
death or, if the worker had a period of
benefits: 75% of deceased
disability which continued until death, at worker’s PIA (for each)
the beginning of the period of disability.
(subject to the maximum family
benefit amount)
Child
A child (including a dependent,
50% of worker’s PIA for child of
unmarried biological child, adopted
a retired or disabled worker
child, stepchild, and, in some cases,
grandchild) of a retired, disabled, or
75% of deceased worker’s PIA
deceased worker who was fully or
for child of a deceased worker
currently insured at the time of death.
(subject to the maximum family
The child must be:
benefit amount)
(1) under age 18; or
(2) a full-time elementary or secondary
student under age 19; or
(3) a disabled person aged 18 or older
whose disability began before age 22.
Source: Congressional Research Service.
Notes: The maximum family benefit may apply, reducing the benefit received by each family member on a
proportional basis. The maximum family benefit varies from 150% to 188% of a retired or deceased worker’s
PIA. For the family of a worker who is entitled to disability benefits, the maximum family benefit is the lesser of
85% of the worker’s AIME or 150% of the worker’s PIA, but no less than 100% of the worker’s PIA.
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Appendix C. Annual Exempt Amounts Under the
Social Security Retirement Earnings Test, Calendar
Years 2000-2011
The RET annual exempt amount is indexed to average wage growth in the economy. An
exception, however, is that the annual exempt amount is not increased in a year during which no
Social Security cost-of-living adjustment (COLA) is payable. In 2010 and 2011 there was no
Social Security COLA, therefore the RET exempt amount did not increase in these years.
The RET applies only to wage and salary income (i.e., earnings from work). It does not apply to
“unearned” income, such as income from pensions, rents, dividends, or interest.
Table C-1. Annual Exempt Amounts Under the Social Security Retirement Earnings
Test, Calendar Years 2000-2011
Calendar Year
Prior to Year of Attaining FRA
During Year of Attaining FRA
2000 $10,080
$17,000
2001 $10,680
$25,000
2002 $11,280
$30,000
2003 $11,520
$30,720
2004 $11,640
$31,080
2005 $12,000
$31,800
2006 $12,480
$33,240
2007 $12,960
$34,440
2008 $13,560
$36,120
2009 $14,160
$37,680
2010 $14,160
$37,680
2011 $14,160
$37,680
Source: Social Security Administration, http://www.socialsecurity.gov/OACT/COLA/rtea.html.
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