Social Security Retirement Earnings Test:
How Earnings Affect Benefits
Updated January 26, 2021
Congressional Research Service
https://crsreports.congress.gov
R41242

Social Security Retirement Earnings Test: How Earnings Affect Benefits

Summary
Under the Social Security Retirement Earnings Test (RET), the monthly benefits of most Social
Security beneficiaries who are below full retirement age (FRA)—between 65 and 67, depending
on year of birth—are reduced if they have earnings that exceed an annual threshold. In 2021, a
beneficiary who is below FRA and wil not attain FRA during the year is subject to a $1 reduction
in benefits for every $2 of earnings above $$18,960. A beneficiary who wil attain FRA in 2021 is
subject to a $1 reduction in benefits for every $3 of earnings above $50,520. The annual
thresholds ($18,960 and $50,520 in 2021) are typical y adjusted each year according to national
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 prorated and applied to al benefits payable on that work record (including
benefits paid to spouses who are above FRA). 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 RET feature, which
al ows beneficiaries to recoup benefits “lost” as a result of the RET, is not widely known or
understood. This benefit recomputation at FRA adjusts (lessens) the actuarial reduction for early
retirement before FRA that was applied in the initial benefit computation by taking into account
months for which benefits were reduced in part or in full under the RET.
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 not be paid to workers who demonstrate, through their level of earnings, that they
have not “retired.” However, that rationale has changed, in part, over time. Specifical y, in 2000,
the RET was eliminated for those above FRA (it previously affected those above FRA until age
70). Because the RET does not apply to those who claim benefits after they have attained FRA,
Social Security benefits become annuitized after FRA.
Studies have shown that the RET has significant impacts on individuals’ earnings levels via their
hours worked. Specifical y evidence shows bunching of individual earnings around the RET
threshold levels. However, there is little evidence that the RET has an impact on the overal labor
force participation rate. When considering a repeal of the RET, research indicates a repeal would
have different impacts across the wage spectrum. Specifical y, it would likely incentivize the
highest earners—whose entire benefits were withheld due to the RET—to decrease work, receive
full benefits, and experience an increased income level overal . Research also suggests that a
repeal of the RET would lead to earlier benefit claiming and increased poverty rates, especial y
among women and those aged 80-89.
In 2019, the Social Security Administration’s (SSA’s) Office of the Chief Actuary (OCACT)
estimated that, over the long-range projection period (2019-2093), the elimination of the RET
would have a relatively smal positive effect on the solvency of the Social Security Trust Funds.
This is primarily due to the fact that the increases in permanent early retirement reductions for
entitlement at age 62 are projected to outweigh the increases in benefit entitlements.
Congressional Research Service

link to page 8 Social Security Retirement Earnings Test: How Earnings Affect Benefits

Introduction
Social Security retirement benefits received before a person attains full retirement age (FRA)—
between 65 and 67, depending on year of birth1—are general y subject to an actuarial reduction
for early retirement and may be reduced by the Retirement Earnings Test (RET) if the beneficiary
has earnings that exceed an annual threshold. Under the RET, a beneficiary who is below FRA
and wil not attain FRA during the calendar year is subject to a $1 reduction in benefits for every
$2 of earnings above an annual exempt amount (also known as a threshold), which is $18,960 in
2021. During the calendar year in which a beneficiary attains FRA, he or she is subject to a $1
reduction in benefits for every $3 of earnings above a higher threshold, which is $50,520 in 2021.
Both thresholds are typical y increased annual y with increases in the national average wage.
This report explains how the RET is applied under current law and provides a detailed example
on how the RET affects two hypothetical worker beneficiaries, one younger than FRA throughout
the calendar year and one attaining FRA in that calendar year. This report also examines RET
features that are not widely known or understood, such as the benefit recomputation 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. Final y, this report discusses RET-
related policy issues and the RET’s potential elimination, including recent research regarding the
RET’s impact on work effort, the decision to claim Social Security benefits, and poverty rates
across certain demographic groups. In brief, key points discussed in this report include the
following:
 The RET began as an al -or-nothing retirement test that resulted in complete
benefit withholdings for any earnings after claiming retirement benefits. Over
time, however, the RET has moved away from this original al -or-nothing nature.
 Under current law, benefits before the FRA may be reduced or withheld for one
or more months as a result of the RET.
 The RET was estimated to impact (with full or partial withholding) roughly
520,000 Social Security beneficiaries in 2019.2
 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
are adjusted upward to take into account months for which no benefit, or a partial
benefit, was paid as a result of the RET.
 Research surrounding the RET provides insight into the current labor and poverty
effects of the policy and potential future changes in those effects if current
legislative proposals were enacted.

1 T he full retirement age (FRA) is the age at which beneficiaries are entitled to full benefits without a reduction based
on age. T he FRA depends on year of birth. For those born between 1938 and 1959, the FRA gradually increases from
65 to 66 and 10 months. For example, a worker born in 19 54 has an FRA of 66, whereas a worker born in 1957 has an
FRA of 66 and 6 months. For those born in 1960 or later, the FRA is 67. See Table 1 for a complete FRA listing. T he
early eligibility age (EEA) is the earliest age at which an individual can claim Social Security benefits. For the purposes
of this report and for most beneficiaries—including workers and spouses—the EEA is 62. It is younger for widow(er)s.
For a more thorough analysis of the FRA and the EEA, please see CRS Report R44670, The Social Security Retirem ent
Age.
2 Letter from Stephen C. Goss, Chief Actuary at the Social Security Administration (SSA), to Representative Jackie
Walorski, May 14, 2019, p. 2, at https://www.ssa.gov/OACT /solvency/JWalorski_20190514.pdf.
Congressional Research Service
1

Social Security Retirement Earnings Test: How Earnings Affect Benefits

 In 2020, the Social Security Administration’s (SSA’s) Office of the Chief
Actuary (OCACT) estimated that, over the long-range projection period (2020-
2094), eliminating the RET starting in 2023 would have a smal positive effect on
the Social Security Trust Funds’ solvency.3
Social Security and Social Insurance Principles
Background on Social Security
Social Security benefits are designed to partial y replace earnings lost to an individual or family
because of the retirement, disability, or death of a worker.4 Benefits can be paid by either the Old
Age, Survivors, and Insurance (OASI) program or the Disability Insurance (DI) program.
Although each program has separate financial operations, the two programs are often referred to
on a combined basis as OASDI. In December 2019, more than 64 mil ion beneficiaries were in
the OASDI program, including retired workers and their dependents (more than 48 mil ion
people), survivors (nearly 6 mil ion people), and disabled workers and their dependents (nearly
10 mil ion people).5 Benefit amounts depend on a worker’s earnings history and are funded
primarily by payroll and self-employment taxes levied on the earnings of covered workers. For
the remainder of this report, the term beneficiary refers to a retired-worker beneficiary unless
otherwise noted.
Social Security in the Social Insurance Context
In private insurance, consumers purchase insurance policies by paying premiums in exchange for
indemnification (i.e., payment of benefits) if a loss occurs due to a covered reason (known as a
peril, which is defined as the direct cause of a loss). If no loss occurs, the insurance company
does not pay the policyholder. For example, homeowners’ insurance policies wil not pay an
insured homeowner without some type of loss to the home through fire.
In social insurance, the general insurance principle stil applies: payment of benefits only occurs
with the presence of a loss due to the insured peril. However, social insurance differs from private
insurance in two main ways: (1) it is general y purchased by more of a nation’s citizens than other
types of insurance (for reasons such as compulsion to purchase, substantial subsidization, or
private market failure) and (2) it general y covers more static, inherent risks that have a universal
impact and a social adequacy focus.6 Social Security benefits for survivor beneficiaries are one
example; with survivors benefits, the test for ensuring a loss has occurred is more finite—is the
worker beneficiary alive or not? With Social Security retirement benefits, it can be less finite.
With these benefits, beneficiaries effectively pay premiums (through payroll taxes) to be
indemnified by benefits paid upon experiencing a loss of income due to the specific peril, namely,
retirement.

3 SSA, Office of Chief Actuary, Solvency Provisions, B7.11, at https://www.ssa.gov/OACT /solvency/provisions/charts/
chart_run309.html.
4 For more detailed information regarding the basics of the Social Security system, please see CRS Report R42035,
Social Security Prim er.
5 SSA, Social Security Beneficiary Statistics, “Number of Beneficiaries Receiving Benefits on December 31, 1970 -
2019,” at https://www.ssa.gov/oact/ST AT S/OASDIbenies.html.
6 T heodore R. Marmor and Jerry L. Mashaw, “Understanding Social Insurance: Fairness, Affordability, and the
‘Modernization’ of Social Security and Medicare,” Health Affairs, vol. 25 (March 2006), pp. 114-134.
Congressional Research Service
2

link to page 29 Social Security Retirement Earnings Test: How Earnings Affect Benefits

Payment of Social Security benefits to a beneficiary after retirement is analogous to payment of
funds from an insurance company due to a policyholder loss. In both cases, insurance principles
dictate that full benefits cannot be paid unless there is evidence of a loss present. For Social
Security retirement benefits, the RET ensures that a beneficiary below FRA is eligible for full
benefits only if he or she has been the subject of a significant loss (as quantified by earnings
dropping below the earnings thresholds). The RET, therefore, was created—and stil exists—in an
effort to abide by long-standing insurance principles that require a loss to pay benefits.
The Retirement Earnings Test’s Basics7
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.8
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 wil be less than his or her original PIA if the
worker begins receiving benefits before FRA, and it wil be greater than his or her original PIA if
the worker begins receiving benefits after FRA.9
Social Security also provides auxiliary benefits to eligible family members of a retired, disabled,
or deceased worker. For more information on auxiliary benefits, see Appendix A.
Who Is Subject to the RET?
Although legislative changes have altered various features of the RET, three key factors stil
remain to establish the RET’s applicability to a worker beneficiary (and, therefore, his or her
auxiliary beneficiaries): (1) type of beneficiary, (2) being below FRA, and (3) having earnings
above certain thresholds in a year with entitlement to Social Security benefits.10

7 §203(b)-(f) of the Social Security Act; 42 U.S.C. §403(b)-(f). See also 20 C.F.R. §§404.415-404.459, and SSA,
Program Operations Manual System (POMS) RS 025 Annual Earnings Test, at https://secure.ssa.gov/apps10/poms.nsf/
subchapterlist !openview&restricttocategory=03025.
8 For a more detailed explanation of the Social Security benefit computation and actuarial adjustments to benefits, see
CRS Report R43542, How Social Security Benefits Are Com puted: In Brief.
9 For workers who claim benefits before FRA, the monthly benefit amount is decreased by an early retirement
reduction. Workers who delay filing for benefits until after FRA receive delayed retirement credits (DRCs). For more
information regarding the mechanics of the early retirement reductions and DRCs, please see CRS Report R44670, The
Social Security Retirem ent Age.
10 For RET purposes, earnings includes all wages, including those earned from both covered and noncovered
employment, and for those wages above the Social Security maximum taxable wage base (and self-employment); SSA,
Program Operations Manual System (POMS) RS 02505.005 How to Count Wages Under the Earnings Test (ET),
05/29/2012, at https://secure.ssa.gov/poms.nsf/lnx/0302505005. The RET does not apply to 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.
Congressional Research Service
3

link to page 8 link to page 17 Social Security Retirement Earnings Test: How Earnings Affect Benefits

Type of Beneficiary
The RET applies only to beneficiaries whose entitlement is not based on a disability. In other
words, the RET does not apply to Social Security disabled beneficiaries, including disabled
workers, disabled widow(er)s, and disabled adult children.11
Below FRA
The RET can apply to any nondisabled beneficiary below the FRA, which varies between 65 and
67 depending on the year of birth (see Table 1). The RET does not apply to worker beneficiaries
who are at or above FRA (application of the RET ends with the month of FRA attainment). In
2000, legislative changes made the RET applicable only for beneficiaries below FRA; previously,
the RET applied to beneficiaries until they reached age 70.12
Table 1. Social Security Full Retirement Ages (FRA) by Birth Year
Birth Year
Social Security FRA
1937 and earlier
65
1938
65 and 2 months
1939
65 and 4 months
1940
65 and 6 months
1941
65 and 8 months
1942
65 and 10 months
1943-1954
66
1955
66 and 2 months
1956
66 and 4 months
1957
66 and 6 months
1958
66 and 8 months
1959
66 and 10 months
1960 and later
67
Source: Social Security Administration, “Benefits Planner: Retirement,” at https://www.ssa.gov/planners/retire/
retirechart.html.
Earnings Above Certain Thresholds
For any beneficiary below FRA who may be subject to the RET, a final test of applicability
requires the beneficiary to also exceed an earnings threshold. 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.13 A beneficiary with no earnings is not
subject to the RET.

11 For more information regarding disabled beneficiaries, see CRS Report R44948, Social Security Disability Insurance
(SSDI) and Supplem ental Security Incom e (SSI): Eligibility, Benefits, and Financing .
12 For more information regarding the legislative history of the RET , please see the “ Historical Background” section.
13 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.
Congressional Research Service
4

link to page 32 link to page 32 Social Security Retirement Earnings Test: How Earnings Affect Benefits

After establishing that a worker beneficiary is both of the applicable type and age and has
earnings, a beneficiary must compare his or her annual earnings to the annual RET thresholds. In
2021, the RET thresholds are $18,960 for beneficiaries who are below FRA and wil not attain
FRA this year and $50,520 for beneficiaries who wil attain FRA this year. The RET exempt
amounts general y increase each year at the same rate as average wages in the national
economy.14 Table B-1 in Appendix B shows the annual exempt amounts under the RET from
calendar years 2007 to 2021.
How the RET Works
For those beneficiaries that meet the applicable RET conditions—being nondisabled, younger
than FRA, and having earnings at least above the threshold amount ($18,960 in 2021)—the RET
reduces Social Security benefits. This reduction occurs in addition to early retirement actuarial
reductions. There are also two important considerations when administering the RET: the
payment of partial benefits and the grace year provision.
The RET Reduces Social Security Benefits
For beneficiaries who are below FRA and wil not attain FRA during the calendar year, Social
Security benefits are reduced by $1 for every $2 earned above the threshold amount ($18,960 in
2021). For beneficiaries who are below FRA and wil attain FRA during the calendar year, Social
Security benefits are reduced by $1 for every $3 earned above the threshold amount ($50,520 in
2021).15
Each year, beneficiaries report predicted earnings for the upcoming year (as they are not verified
until the close of the taxable year). Predicted annual 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 every $2 or $3 of earnings above the exempt amount, and continue to be
charged each month until al 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 recorded to be paid when the charge to a given month is less than the monthly benefit.

14 RET thresholds remain unchanged for years in which there is no cost -of-living adjustment (COLA) paid.
15 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 RET s: one for beneficiaries below
FRA and one for beneficiaries between FRA and age 70. T he RET for beneficiaries between FRA and age 70 was more
generous; the exempt amount was higher and the reduction to benefits was $1 for every $3 (a 33% offset) 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 every $2 (a 50% offset) of earnings above that amount. In 2000, when lawmakers
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. T he concern arose because, under pre -2000 law, the more generous
RET applied to beneficiaries starting in January of the year they attained FRA. T herefore, eliminating the more
generous RET would cause these beneficiaries to be subject to the lower exempt amount and the 50% offset during that
year (rather than the higher exempt amount and the 33% offset during that year). T o address this concern, the House
version of the legislation, for the year 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 William Clinton signed the legislation,
which became P.L. 106-182.
Congressional Research Service
5

link to page 12 Social Security Retirement Earnings Test: How Earnings Affect Benefits

Partial Benefit Payments
According to SSA procedure, when partial monthly benefits are anticipated to be paid based on
projected earnings, those partial monthly benefits are paid only at the close of the taxable year.16
In essence, the beneficiary must wait until the statement of earnings has been verified, which
usual y occurs in the first quarter of the following calendar year during tax season. Despite this
delay, there is no interest paid for the withheld partial benefits.
By electing to pay beneficiaries in the next calendar year, the SSA is deciding to wait for annual
earnings statements to become finalized and validated. Essential y, this is done to ensure that
actual earnings from the year are equal to the predicted or reported earnings from the beginning
of the year.17 If the actual earnings are equal to the predicted earnings, the partial benefit is paid
as original y calculated. If the actual earnings are higher, however, a larger RET reduction may be
warranted, which would come from the unpaid partial benefit month. In some cases, the partial
benefit could be reduced to zero if actual earnings for the year exceeded the predicted earnings by
a significant amount. Had the partial benefit been paid, the beneficiary would owe the SSA for
benefit overpayment. If the opposite occurred, and actual earnings were lower than predicted, the
SSA would owe the beneficiary an additional amount above the unpaid partial benefit.
After the partial monthly benefit is withheld, the beneficiary receives full benefits for the
remainder of the year. In Table 2, for example, the first individual (the beneficiary below FRA
throughout the calendar year) receives no monthly benefits from January through July due to the
RET, and then he or she is due a partial benefit in August. It is this partial monthly benefit due in
August that wil be paid at the close of the taxable year. The monthly benefits due for the
remainder of the year (September through December) are projected to be paid in full on their
regular payment schedule.
In either case, it is administratively simpler to add or deduct additional benefits to or from an
outstanding partial benefit payment than to issue an entirely new payment or to request repayment
through collections. The intent of this procedure is twofold: administrative simplicity and to save
a beneficiary the inconvenience of having to return an overpayment of benefits.
The RET in Conjunction with Early Retirement Reductions
When a worker elects to claim Social Security benefits before his or her FRA, he or she is subject
to a permanent actuarial reduction in the PIA. 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.18 The RET is applied to the PIA only after it has been reduced by the

16 SSA, Social Security Handbook, Chapter 18: Reduction or Nonpayment of Social Security Benefits, 1806.2 When Is
The Partial Monthly Benefit Paid?, 01/17/2003, at https://www.ssa.gov/OP_Home/handbook/handbook.18/handbook-
1806.html.
17 SSA, Program Operations Manual System (POMS) RS 02501.100 Imposing Work Suspensions, 04/27/2011, at
https://secure.ssa.gov/apps10/poms.nsf/lnx/0302501100.
18 Retirement benefits are reduced by five-ninths of 1% (or 0.56%) of the worker’s PIA for the first 36 months
immediately before FRA. Stated another way, the actuarial reduction for early retirement is about 6.67% per year for
the first three years of entitlement before FRA (i.e., from the age of “FRA minus 36 month s” to FRA, or ages 64 to 66
if the FRA is 67). For each additional month of entitlement before FRA (up to 24 months), retirement benefits are
reduced by five-twelfths of 1% (or 0.42%) of the worker’s PIA, or an annual reduction of 5% (i.e., ages 62 and 63 if the
FRA is 67). 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.
Congressional Research Service
6

link to page 33 link to page 12 link to page 12 Social Security Retirement Earnings Test: How Earnings Affect Benefits

early retirement actuarial adjustment. Both the permanent reduction for early retirement and the
RET are applied to beneficiaries below FRA.
The Grace Year Provision
A “grace year” general y applies during the first 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.19 However, after becoming
entitled, the monthly earnings test is an absolute one: if exceeding the monthly threshold, the
beneficiary wil receive no benefits for that month.
In general, the grace year provision ensures that beneficiaries electing entitlement in a calendar
year do not receive a withholding of their benefits after they have terminated working, at least
from the pre-retirement level. See Appendix C for a detailed example.
Examples of How the RET Works
Table 2 il ustrates the application of the RET to a single person who receives benefits based on
his or her own work record. The table il ustrates the effect of the RET on single worker
beneficiaries in two different age groups: beneficiaries who wil remain below FRA throughout
the calendar year and beneficiaries who wil attain FRA during the calendar year. In accordance
with Table 2, the two single worker beneficiaries in the following examples experience the
effects of the RET:
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 (after
the reduction for early retirement) and earnings of $52,000 in 2021. Because this worker
beneficiary is below FRA throughout the calendar year, he or she is subject to a $1
reduction in benefits for every $2 of earnings above the annual exempt amount of
$18,960 in 2021. Therefore, the worker has excess earnings equal to $33,040 and wil
have an RET reduction (an RET charge) equal to $16,520. Each month, the original
monthly benefit ($2,000) is withdrawn from the RET charge, so, for this beneficiary,
there wil be seven months of entirely withheld benefits, one partial y withheld month of
benefits in August, and four months of full benefits paid.
Single Worker Beneficiary Who Attains FRA in September of This Calendar Year
This example shows a worker beneficiary with a monthly benefit amount of $2,000 (after
the reduction for early retirement) and earnings of $52,000 in 2021. Because this worker
beneficiary wil attain FRA during September of this calendar year, he or she is subject to
a $1 reduction in benefits for every $3 of earnings above the annual exempt amount of
$50,520 in 2021. Therefore, the worker has excess earnings equal to $1,480 and wil have
an RET reduction (an RET charge) equal to $493. For this beneficiary, there wil only be
one partial y withheld month (January, wherein the RET charge becomes $0) with full
benefits paid for the remainder of the year. As he or she is attaining FRA in September,
the monthly benefit in September and beyond wil be higher than $2,000 as it is

19 SSA, Social Security Handbook, Chapter 18: Reduction or Nonpayment of Social Security Benefits, 1807 Grace
Year and Non-Service Month Defined, 08/08/2011, at https://www.ssa.gov/OP_Home/handbook/handbook.18/
handbook-1807.html.
Congressional Research Service
7

link to page 12 link to page 12 link to page 12 link to page 12 link to page 12 link to page 15 Social Security Retirement Earnings Test: How Earnings Affect Benefits

readjusted for al of the months since entitlement that the beneficiary had benefits
withheld, in part or in full, due to the RET.
Table 2. Hypothetical Example of the Application of the Retirement Earnings Test to
a Single Worker Beneficiary with Earnings Above the Annual Exempt Amount in
2021
Worker Beneficiary is Below
Worker Beneficiary Attains
Step
FRA Throughout Calendar
FRA in September of Calendar
Year
Year
1. Social Security monthly benefit
after the actuarial reduction for
$2,000
$2,000
early retirement
2. Calculation of earnings above the
annual threshold

Predicted earnings in 2021
$52,000
$52,000
RET threshold in 2021
$18,960
$50,520
Earnings above the threshold
$33,040
$1,480
3. RET charge
$16,520
$493
(one-half of earnings above the
(one-third of earnings above the
threshold)
threshold)
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
$1,507b
February through August
monthly benefits
$0a
$2,000
September monthly benefit
$1,480b
$2,000
October through December
$2,000
$2,000c, plus the readjustment of
monthly benefits
benefits withheld due to the RET,
which is done at FRA
Source: Congressional Research Service.
Notes: This example assumes that the worker beneficiary receives benefits based only on his or her own work
record. The starting benefit amounts include actuarial reductions for retirement before FRA and any other
reductions that may apply. The example is constructed so that the grace year provision does not apply, as it
assumes that the beneficiary both works and col ects benefits over the ful calendar year.
a. No benefit is paid in these months because the beneficiary’s RET balance is larger than the monthly benefit
amount, so the RET charge for these months is equal to the monthly benefit amount.
b. This partial amount is not paid in this month, per Social Security Administration procedure. Instead, the
partial benefit wil be paid in 2022 after 2021 earnings have been verified to match the expected earnings
(which, in this example, are equal to $52,000).
c. Please reference Table 3 to see examples as to how this type of benefit readjustment is made.
Congressional Research Service
8

link to page 15 link to page 15 Social Security Retirement Earnings Test: How Earnings Affect Benefits

Restoration of RET-Withheld Benefits Upon Attaining FRA
When a beneficiary has had benefits fully or partial y withheld under the RET, benefits “lost” as a
result of the RET are restored starting at FRA. Specifical y, 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 (i.e., 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.20
Detailed examples are in Table 3.
Stated general y, if a worker’s benefits are reduced in the initial benefit computation to reflect 24
months of early retirement, and the worker subsequently has benefits withheld under the RET for
12 months, the benefit recomputation at FRA wil reflect an actuarial reduction for 12 (= 24 – 12)
months of early retirement, resulting in a higher monthly benefit amount starting at FRA. In
essence, the worker is treated as if he or she had claimed benefits a year later than when he or she
actual y did and receive the lower actuarial adjustment for early retirement as a result.
Application of the Recomputation of Benefits After FRA
The following examples are il ustrated in Table 3 below.
An Example–FRA of 65
Consider the first worker, who starts receiving Social Security retirement benefits at the age of 62
with an FRA of 65 and has earnings above the RET exempt amount. Because the person claims
retirement benefits three years (36 months) before attaining FRA and has earnings above the RET
threshold, he or she wil be subject to both (1) the actuarial reduction for benefit entitlement
before FRA and (2) benefit withholding under the RET.
1. Actuarial reduction for early retirement
As the early retirement does not exceed three years (36 months), this worker is subject to
only the actuarial reduction of about 6.67% per year. In this example, the total actuarial
reduction in the person’s initial monthly benefit is 20%. This results in a monthly benefit
equal to $2,000, which was reduced from $2,500 original y.21
2. Benefit withholding under the RET
In addition, the person continues to work throughout the three-year period from the ages
of 62 to 65 and has earnings above the threshold. If this worker has his or her benefits
affected by the RET for, hypothetical y, eight months each year, it can be determined that
the RET results in a partial or complete reduction for a total of 24 months (January-
August for each of the three years). The benefit recomputation when the person attains
FRA wil take into account that the person experienced either zero or partial benefits for
24 months as a result of the RET.

20 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 2021 would be included in a recomputation effective January 2022. SSA’s Program Operations Manual System
(POMS) RS 00605.401 Recomputations and Recalculations, effective October 1, 2010, at https://secure.ssa.gov/
apps10/poms.nsf/links/0300605401.
21 If the worker was never affected by the RET , this reduced benefit (of $2,000) would be the benefit payable on a
permanent basis, even after reaching FRA (unless a later year of work resulted in a higher PIA calculation).
Congressional Research Service
9

link to page 15 link to page 10 Social Security Retirement Earnings Test: How Earnings Affect Benefits

3. Recomputation of benefits
Specifical y, the reduction factor for benefit entitlement before FRA wil be adjusted from
36 months to 12 months (36 – 24 = 12). Starting at FRA, the person’s monthly benefit
wil be increased to reflect an actuarial reduction for benefit entitlement before FRA of
about 6.67% instead of 20%. This beneficiary is now eligible for a benefit of $2,333 per
month. While this benefit is stil reduced from the original $2,500 amount because of the
early retirement actuarial reductions, the beneficiary receives a higher monthly benefit
than the original $2,000 because benefits withheld under the RET are restored at FRA.
An Example–FRA of 67
Considering the second worker from Table 3, assume that the worker began receiving benefits at
the age of 62, which is five-full years before the worker’s FRA of 67. The worker also has
earnings above the RET threshold. As such, he or she is subject both (1) the actuarial reduction
for benefit entitlement before FRA and (2) benefit withholding under the RET.
1. Actuarial reduction for early retirement
With five years of pre-FRA entitlement, this beneficiary is subject to both levels of the
actuarial reduction: the first three years immediately prior to FRA (consider the years
aged 64, 65, and 66) are reduced at a combined 20% and the additional two years
(consider the years aged 62 and 63) are reduced at a combined 10%.22 With a total benefit
reduction of 30%, the beneficiary’s original $2,500 monthly benefit is reduced to
$1,750.23
2. Benefit withholding under the RET
In addition, the person continues to work throughout the five-year period from age 62 to
age 67 and has earnings above the threshold in each year causing a reduction in his or her
monthly benefit under the RET. If this worker has his or her benefits affected by the RET
for, hypothetical y, eight months each year, it can be determined that the RET results in
40 months (January-August for each of the five years) of affected benefits (either zero or
partial). The benefit recomputation when the person attains FRA wil take into acc ount
that the person received either zero or partial benefits for 40 months as a result of the
RET.
3. Recomputation of benefits
Specifical y, the reduction factor for benefit entitlement before FRA wil be adjusted from
60 months to 20 months (60 – 40 = 20). Working backwards, the first 24 months are
adjusted at 5% per year, which is a 10% change. Then, for the remaining 16 months,
benefits are adjusted at the 6.67% annual rate for a total adjustment of 8.89%. Combining
the 10% and 8.89% adjustments, the original 30% actuarial reduction wil be adjusted for
40 months by 18.89% for a new actuarial reduction of 11.11%, which represents the 20
remaining months above. This beneficiary is now eligible for a benefit of $2,222 per
month. While this benefit is stil reduced from the original $2,500 amount because of the
early retirement actuarial reductions, the beneficiary receives a higher monthly benefit
than the original $2,000 because benefits withheld under the RET are restored at FRA.

22 See footnote 18 for more information.
23 If the worker was never affected by the RET , this reduced benefit (of $1,750) would be the benefit payable on a
permanent basis, even after reaching FRA (unless a later year of work resulted in a higher PIA calculation).
Congressional Research Service
10

link to page 16 link to page 16 link to page 16 link to page 16 link to page 16 link to page 16 link to page 16 link to page 16 link to page 16 Social Security Retirement Earnings Test: How Earnings Affect Benefits

Comparing Recomputations at FRA
Note that the final, recomputed benefit for the beneficiary with an FRA of 67 is notably smal er
than that of the beneficiary with an FRA of 65. This occurs because the beneficiary with the FRA
of 65 spends less “time in early retirement” than the beneficiary with the FRA of 67. As more and
more beneficiaries must attain age 67 to reach FRA (with the FRA increasing from 65 to 67 for
every later birth year), compounding reductions of benefits may become more universal in nature.
However, workers who delay filing for benefits until after FRA, and avoid being affected by the
RET, 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 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 FRA in 2009).24
Table 3. Hypothetical Example of the Application of the Readjustment of Benefits at
FRA
Worker
Worker
Step
Beneficiary With
Beneficiary With
an FRA of 65
an FRA of 67
1. Social Security monthly benefit (PIA) before the actuarial
reduction for early retirement
$2,500
$2,500
2. Identify the percentage of actuarial reduction in initial
benefits for entitlement at age 62

For the 36 months immediately prior to FRA, 5/9 of 1%
per month or 6.67% per year
20%
20%
For the months in excess of 36, 5/12 of 1% per month or
None
10%
5% per year
Total benefit reduction for early retirement
20%
30%
3. Calculate the monthly benefit after actuarial reductions for
early retirement
$2,000a
$1,750a
4. Hypothetical y, assume a beneficiary was affected by the RET
24b
40b
for 8 months per year and calculate the total number of
months he or she had benefits withheld, either partial y or
entirely, due to the RET
5. Calculate the percentage given back to the beneficiary for

those impacted monthsc
Months at 5/12 of 1%
None
24
Months at 5/9 of 1%
24
16
Total percentage to be added back to the monthly benefit
13.33%d
18.89%e
6. Calculate the new actuarial reduction for early retirementf
6.67%
11.11%
7. Calculate the new, permanent monthly Social Security
benefitg
$2,333
$2,222
Source: Congressional Research Service.
Notes: This example assumes that these beneficiaries began receiving benefits at age 62.

24 For more information regarding DRCs, please see CRS Report R44670, The Social Security Retirement Age.
Congressional Research Service
11

link to page 17 link to page 17 link to page 19 Social Security Retirement Earnings Test: How Earnings Affect Benefits

a. This is calculated by first multiplying the original monthly benefit in Step 1 by the total benefit reduction
percentage to get the dol ar reduction. Then, subtract that dol ar reduction from the original benefit from
Step 1. So, for example, 2500 * 0.20 = 500, and 2500 – 500 = 2000.
b. This value is calculated by multiplying 8 months * 3 (each year of entitlement before FRA) = 24 months (for
an FRA of 65), and by multiplying 8 months * 5 (each year of entitlement before FRA) = 40 months (for an
FRA of 67).
c. These percentages are given back with the “months in excess of 36” being returned first. When that 10% is
exhausted, the beneficiary begins to earn back the “36 months immediately prior to FRA.”
d. This amount is calculated by multiplying 5/9% * 24 = 13.33%. These 24 months represent the two years of
impacted benefits.
e. This amount is calculated in two parts because the beneficiary retired more than three years, or 36 months,
before his or her FRA. So, first, he or she earns the 10% lost for the 24 months in excess of 36. Then, with
16 months remaining in his or her balance (= 40 – 24), multiply 16 * 5/9% to get 8.89%. So, the total
percentage to be added back is 18.89% (= 10 + 8.89).
f.
This amount is calculated by subtracting the percentage to be added back from the initial reduction. So, for
example, 20% - 13.33% = 6.67%.
g. This is calculated in the same way as in Step 3. Benefit amounts are rounded down to the next lowest
dol ar.
Worker Beneficiaries’ Earnings Levels
Table 4 shows the number of worker beneficiaries who had earnings in 2017, the most recent
year for which data are available from SSA’s 1-Percent Continuous Work History Sample. More
than 3.2 mil ion worker beneficiaries who were below FRA during al or part of 2017 had
earnings.
With respect to the data shown in Table 4, not al 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.
Although these 3.2 mil ion worker beneficiaries are not al affected by the RET, these data
provide insight into the universe of worker beneficiaries who could be affected by the RET. For
those below FRA throughout 2017, the threshold was $16,920 annual y, and for those attaining
FRA in 2017, the threshold was $44,880 annual y. When identifying the nearest ranges (those
from $1 to $14,999, which is the closest threshold to $16,920 and from $1 to $44,999, which is
the closest threshold to $44,880), it is clear that a majority of the worker beneficiaries with
earnings (more than 50% in each population) have earnings below the threshold amounts; in the
“Policy Issues” section below, the dispersion across earnings levels wil provide a useful context.
Congressional Research Service
12

link to page 17 link to page 17 Social Security Retirement Earnings Test: How Earnings Affect Benefits

Table 4. Number of Worker Beneficiaries with Earnings in 2017

Below FRA Throughout 2017a
Attained FRA in 2017b
Annual Earnings
Ranges
Number
Percentage
Number
Percentage
$1-$4,999
538,900
24.49%
228,500
22.17%
5,000-9,999
296,200
13.46%
122,300
11.87%
10,000-14,999
279,100
12.68%
103,900
10.08%
15,000-19,999
239,600
10.89%
85,100
8.26%
20,000-24,999
147,800
6.72%
66,900
6.49%
25,000-29,999
113,600
5.16%
57,600
5.59%
30,000-34,999
88,500
4.02%
47,900
4.65%
35,000-39,999
70,100
3.19%
42,300
4.10%
40,000-44,999
58,700
2.67%
37,700
3.66%
45,000-49,999
49,900
2.27%
29,200
2.83%
50,000-54,999
41,300
1.88%
29,300
2.84%
55,000-59,999
37,300
1.69%
21,200
2.06%
60,000-64,999
31,300
1.42%
20,000
1.94%
65,000-69,999
25,600
1.16%
17,200
1.67%
70,000-74,999
22,000
1.00%
12,500
1.21%
75,000-79,999
18,100
0.82%
11,600
1.13%
80,000-84,999
15,400
0.70%
10,400
1.01%
85,000-89,999
14,400
0.65%
6,400
0.62%
90,000-99,999
21,600
0.98%
14,600
1.42%
100,000 or more
91,400
4.15%
66,100
6.41%
Total with
Earnings
2,200,800
100.00%
1,030,700
100.00%
Source: Data received by CRS from the Social Security Administration (SSA), Office of Research, Evaluation and
Statistics: 1-Percent Continuous Work History Sample—2018 Active File and 2017 Employee and Employer File.
Data provided by SSA to CRS in December 2020.
Notes: Table includes individuals who were awarded retired-worker benefits by December 2016.
a. The threshold amounts for persons who were below FRA throughout 2017 were $16,920 annual y and
$1,410 monthly.
b. The threshold amounts for persons who attained FRA in 2017 were $44,880 annual y and $3,740 monthly.
Historical Background
As mentioned earlier, Social Security benefits are meant to partial y replace earnings lost to an
individual or family because of the worker’s retirement, disability, or death. The rationale for the
RET was outlined in the 1935 report of the Committee on Economic Security, which
Congressional Research Service
13

link to page 8 Social Security Retirement Earnings Test: How Earnings Affect Benefits

recommended that no benefits be paid before a person had “retired from gainful employment.”25
This recommendation was emblematic of the pure social insurance idea discussed previously.
The original Social Security Act in 1935 barred payment of benefits for any month in which a
beneficiary received wages from “regular employment.”26 This provision never went into effect,
however, because the Social Security Board, and other prominent figures, thought it would be
nearly impossible to determine the practical definition of “regular employment” in different
industries and occupations. Instead, the board recommended a specific monetary amount to
simplify administration. In 1939, and before any benefits were ever paid, Congress incorporated
these recommendations in amendments to the Social Security Act.27 Starting with the first
benefits paid in 1940, benefits were withheld entirely for months in which covered earnings were
$15 or more. In essence, this put a price tag on retirement: being retired constituted receiving
Social Security benefits and a salary for work up to $14.99 per month. At this point, the RET
applied to anyone claiming benefits; in line with the principle of social insurance, there was not
yet an age at which the RET no longer applied. Over time, various aspects of the RET became
subject to legislative attention, including age limits, earnings thresholds, and its al -or-nothing
nature.
Age Limits
An RET age limit is the age at which the RET no longer applies. Lawmakers first applied an age
limit to the RET as part of the Social Security Act Amendments of 1950. In 1950, the RET was
made applicable only to retirees up until age 75, at which point Social Security benefits became
an annuity capable of being supplemented with any amount of additional work earnings.
Lawmakers continued to lower the age limit throughout the second half of the 20th century: to age
72 in 1954, age 70 in 1977, and FRA (see Table 1) in 2000.
Earnings Thresholds
Other than the age at which the RET applied, a major issue with concern to the RET since the
establishment of the Social Security Act was related to the thresholds at which the RET would
become applicable. As mentioned above, the threshold was first changed in 1939 (from $0 to $15
per month). The threshold was subsequently increased over the years on an ad hoc basis. Final y,
the thresholds were indexed to national average wage growth in 1972 (effective in 1975).28

25 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.”
26 P.L. 74-271, the Social Security Act of 1935, §202(d), at https://www.ssa.gov/history/pdf/Downey%20PDFs/
Social%20Security%20Act%20of%201935%20Vol%201.pdf#page=50.
27 Larry DeWitt, “Special Study #7: T he History and Development of the Social Security Retirement Earnings T est, ”
Social Security Administration: Reports and Studies, August 1999, at https://www.ssa.gov/history/ret2.html. (Used
hereinafter as a reference for any discussion of amendments throughout the Historical Background section made from
1939 through 1996.)
28 SSA, Automatic Determinations, Exempt Amounts 1975-1999, October 2008, at https://www.ssa.gov/OACT /COLA/
rteahistory.html.
Congressional Research Service
14

Social Security Retirement Earnings Test: How Earnings Affect Benefits

All-or-Nothing Nature
Until 1972, the al -or-nothing nature of the RET remained.29 Once hitting the threshold, a
beneficiary’s monthly benefit would be reduced to $0, which was the subject of much criticism
(especial y from those that were self-employed). In response, lawmakers amended the Social
Security Act in 1972 to end the al -or-nothing RET reduction and replace it with a new one: $1
for every $2 in earnings beyond the RET thresholds. Later, in 1983, lawmakers established the
two-threshold structure ($1 for every $2 over the threshold for those between age 62 and 64 and
$1 for every $3 over the threshold for those between age 65 and 69). In 2000, the current structure
was created ($1 for every $2 over the threshold for those not attaining FRA in a certain calendar
year and $1 for every $3 over the threshold for those attaining FRA in that calendar year).
Other Notable Developments
The RET has evolved from a monthly test to an annual one (with the exception of the “grace
year” as discussed previously). Until 1977, the monthly test was used, which al owed workers to
have a few months of earnings high enough to result in no benefits yet stil receive benefits in the
months for which they fel under the threshold. These amendments in 1977 marked the first time
that the RET was made “less generous” since its inception in 1935.
Another major change materialized with the implementation of delayed retirement credits (DRCs)
in 1972. Although DRCs are general y thought of as increased benefits for delayed retirement,
they also are what provide for the recomputation of benefits at FRA to account for months
wherein Social Security benefits were entirely or partial y withheld due to the RET.
The most recent legislative change to the RET occurred in 2000 when Congress eliminated the
RET for beneficiaries beginning with the month they attain FRA. This change was proposed
under the Senior Citizens’ Freedom to Work Act of 2000, which became P.L. 106-182. During the
congressional debates of 2000, the desire to incentivize those between FRA and age 70 to return
to substantial work (resulting in earnings above the thresholds that existed) was the leading push
to create legislation.30 P.L. 106-182During congressional debates on the legislation that became
P.L. 106-182, Members of Congress expressed an expectation that eliminating the RET at FRA
would lead to an increase in both the earnings of those who were decreasing hours worked (to
keep pay below RET thresholds) and the overal labor force participation rate among those who
had already retired from work. In the research analyzing the results from 2000, which is discussed
in detail below, those expectations were met for some populations, specifical y with large
earnings increases for those with higher incomes and increases in the labor force participation rate
for women (except for married women).
Policy Issues
Policymakers have questioned the RET’s impact on labor supply and the timing of Social
Security benefit claiming. Some argue that the RET is perceived as a “tax” or penalty on work
effort, and that it induces workers to work fewer hours or even to retire completely from the
workforce. Others argue that the RET causes workers to delay claiming Social Security benefits.
However, the recomputation of benefits at FRA to account for any benefits affected by the RET is

29 Under the 1960 amendments, there was a change to have the RET penalty be $1 for every $2 of earnings over the
$1,200 annual threshold. However, once establishing an annual earnings record over $1,500, the all-or-nothing RET
penalty remained in effect.
30 House debate, Congressional Record, daily edition, vol. 146, part 36 (March 28, 2000), pp. H1441 -H1447.
Congressional Research Service
15

Social Security Retirement Earnings Test: How Earnings Affect Benefits

not wel known or understood. Nevertheless, both of these effects could have important
implications for the retirement security of older workers. Quantitative studies have found mixed
evidence concerning the RET’s impact on work hours, retirement decisions, and the timing of
Social Security benefit claims. As a result, it is necessary to examine the impact of the RET and
potential repeal of the RET on individuals across different income levels and demographic
groups.
The RET, Threshold Bunching, and Individual Behavior
Bunching Behavior at Lower Earnings Levels
Research has shown that a significant impact of the RET—both before and after the major
legislative action of 2000 to eliminate the RET above FRA—is the bunching of labor hours by
individuals at the RET threshold amounts. Although the individual decision to increase or
decrease hours worked varies by income level, the notion is that for earnings at or just above the
annual RET threshold, the RET may encourage workers to work fewer hours and keep earnings
just under the RET threshold. This effect is known as bunching under the RET threshold. An
often-cited 1999 study found that a subset of workers do cluster at earnings levels just below the
RET threshold.31 Other research has noted and documented a similar phenomenon.32 In addition,
a 2007 study noted that the previously seen bunching at earnings thresholds for those between
FRA and age 70 had disappeared after the 2000 legislation.33 This finding was significant in
acknowledging the direct, and seemingly rapid, impact policymakers can have—in this case, with
a partial RET repeal (above FRA)—on the behavior of lower earning Social Security
beneficiaries regarding their hours worked.
Ambiguity at Higher Earnings Levels
At higher earnings levels (far above threshold 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. 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 in other ways
depending on combined family benefits and total family income.34
Lifecycle and Myopic Views
Despite the literature’s finding of an altered labor supply, the RET is actuarial y fair in its
readjustment of benefits at FRA—meaning that over the course of the average person’s lifespan,
he or she wil receive al of the benefits withheld due to the RET—and as such, there should not
be an altered labor supply. However, because there is an effect, two schools of thought regarding

31 Leora Friedberg, The Labor Supply Effects of the Social Security Earnings Test, National Bureau of Economic
Research, Working Paper no. 7200, June 1999.
32 Haider and Loughran, 2007; Song and Manchester, 2007; Olsen and Romig, 2013; Gary V. Engelhardt, The
Minim um Wage and Incentives for Full-Tim e Work Under the Social Security Retirem ent Earnings Test, Center for
Retirement Research at Boston College, Working Paper no. 2018-13, October 2018.
33 Gary V. Engelhardt and Anil Kumar, The Repeal of the Retirement Earnings Test and the Labor Supply of Older
Men, Center for Retirement Research at Boston College, Working Paper no. 2007-1, May 2007.
34 Jae G. Song and Joyce Manchester, “How Have People Responded to Changes in the Retirement Earnings T est in
2000,” Social Security Bulletin, vol. 67, no. 1 (2007).
Congressional Research Service
16

Social Security Retirement Earnings Test: How Earnings Affect Benefits

how to study the RET exist: the lifecycle view and the myopic view.35 The lifecycle view is
general y held by those workers who understand that the RET withholdings wil be coming bac k
to them in an actuarial y neutral manner, considering the average person’s lifespan. Therefore,
those individuals would not look at the RET as a “tax” entirely. The myopic view, in contrast, is
more commonly held by individuals who do not give the same economic value to the increased
benefits later in life. In that way, those beneficiaries are more myopic and prefer a dollar today to
two dollars tomorrow. As such, people with the myopic view are general y held to that view
because of particular circumstances and beliefs, such as they have a limited ability to borrow
money in the present, a shorter-than-average lifespan, a risk averse attitude, a higher personal
discount rate,36 or a lack of awareness of the later benefit readjustment. The higher personal
discount rate is emblematic of someone who views the RET as having a less than actuarial y fair
impact on him or her with his or her prioritization of current and present benefits.37
The RET and Aggregate Labor Behavior
Labor force participation is a worker’s decision to remain in the workforce or not, while the
aggregate labor supply looks at total hours worked by workers and beneficiaries across the
retired-worker beneficiary population. The effect of the RET on the labor force participation and
aggregate labor supply is important for policymakers. When advocating for the repeal of the RET,
some policymakers want to incentivize retirees to go back to work or discourage people from
exiting the paid labor force. Research has suggested mixed impacts of the RET on the labor
supply decision of older workers.
Earlier studies largely concluded that the RET has little meaningful impact on the labor supply
decision for older men.38 One 2003 study of the 1973-1998 period 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 raising the RET thresholds would have a positive impact on
women’s earnings (no evidence was found for an impact on women’s work hours).39 Another
study, using Social Security administrative data matched with data from the Survey of Income
and Program Participation, also found no clear evidence of an increase in employment among
workers aged 65-69 following the elimination of the RET in 2000 for those between FRA and age
69.40

35 Marjorie Honig and Cordelia Reimers, “Is It Worth Eliminating the Retirement T est?” The American Economic
Review, vol. 79, no. 2 (1989), pp. 103-107. (Cited for the basis of the rest of this paragraph, unless otherwise cited.)
36 T he discount rate is a rate used to equate present dollars to past or future dollars.
37 Gary V. Engelhardt and Anil Kumar, “T axes and the Labor Supply of Older Americans: Recent Evidence from the
Social Security Earnings T est,” National Tax Journal, vol. 67, no. 2 (2014), pp. 443-458.
38 See Alan Gustman and T homas Steinmeier, “T he 1983 Social Security Reforms and Labor Supply Adjustment of
Older Individuals in the Long Run,” Journal of Labor Econom ics, vol. 3, no. 2 (1985), pp. 237-253; Gary Burtless and
Robert A. Moffitt, “ The Joint Choice of Retirement Age and Postretirement Hours of Work,” Journal of Labor
Econom ics, vol.3, no. 2 (1985), pp. 209-236; Cordelia Reimers and Marjorie Honig, “ Responses to Social Security by
Men and Women: Myopic and Far-Sighted Behavior,” Journal of Hum an Resources, vol. 31, no. 2 (1996), pp. 359-
382; and Michael Leonesio, “ T he Effects of the Social Security Earnings T est on the Labor -Market Activity of Older
Americans: A Review of Empirical Evidence,” Social Security Bulletin, vol. 53, no. 5 (1990), pp. 2-21.
39 Jonathan Gruber and Peter Orszag, “Does the Social Security Earnings T est Affect Labor Supply and Benefits
Receipt?” National Tax Journal, vol. 56, no. 4 (2003), pp. 755-773.
40 Jae G. Song, “Evaluating the Initial Impact of Eliminating the Retirement Earnings T est ,” Social Security Bulletin,
vol. 65, no. 1 (2003/2004).
Congressional Research Service
17

Social Security Retirement Earnings Test: How Earnings Affect Benefits

Other studies, however, have suggested that the RET has a large effect on labor force participation
and aggregate labor supply. One study estimated that the RET reduced the employment rate of
those aged 63-64 by about 3.3 percentage points using Social Security Administration data from
1968 to 1987.41 A 2004 study estimated a life cycle model of retirement and wealth and found that
the RET reduced the share of married men aged 62 to FRA who worked full time by about four
percentage points.42 A more recent study estimated a life cycle model of retirement, savings,
pension wealth, and health insurance for older men using data from the Health and Retirement
Study and found that the 2000 RET repeal for those between FRA and age 69 could increase the
labor force participation among men aged 65-69 by about 8%.43 Another study estimated that the
2000 RET repeal increased weeks worked per year by 11.0% and hours worked per week by
17.7% for workers aged 65-69.44 A 2008 study, using longitudinal administrative earnings data
and survey data, also found that at least 4.8% of the workforce adjusted their labor supply in
response to the RET reform, and relatively younger men responded more to the RET reform than
did older men.45
Research has also suggested that the RET may have a relatively large impact on certain groups of
older workers. One study concluded that the RET from 1978 to 1987 reduced the employment
rate by more than one percentage point for a group of workers with earnings around the RET
thresholds.46 In addition, a 2018 study, which used data through 2012, theorized that the labor
force participation rate general y rose for women after 2000. However, that increase only
materialized for women who were single, divorced, separated, or widowed (married women saw a
decrease in their labor force participation rate).47
Additional y, several studies found that beneficiaries below FRA are also affected by the 2000
RET repeal for those between FRA and age 69. Social Security beneficiaries who are under FRA
and have earnings above the RET thresholds may face two different types of choices. One is to
reduce their labor supply first and increase it after reaching FRA (the point at which earnings are
no longer subject to the RET). The other option is to return to work and increase their labor
supply so that they can secure a position until reaching FRA. The latter choice is motived by the
fact that re-entering the labor market is relatively chal enging for older workers (also referred to
labor market rigidities). Several studies have shown evidence to support the latter choice, that is,
the RET repeal for those at or above FRA increases the labor supply among younger workers
(those below FRA). For example, one study found that those slightly younger workers (below
FRA) increased their weeks worked per year by 5.4% and hours worked per week by 5.1% in

41 Alexander Gelber et al., The Employment Effects of the Social Security Earnings Test, National Bureau of Economic
Research, Working Paper no. 26696, January 2020.
42 Alan L. Gustman and T homas L. Steinmeier, The Social Security Retirement Earnings Test, Retirement and Benefit
Claim ing, National Bureau of Economic Research, Working Paper no. 10905, November 2004.
43 Neha Bairoliya, “Pension Plan Heterogeneity and Retirement Behavior,” European Economic Review, vol. 116
(2019), pp. 28-59.
44 Chen T engjiao, Yajie Sheng, and Yu Xu, “T he Anticipation Effect of the Earnings T est Reform on Younger
Cohorts,” Public Finance Review, vol. 48, no. 4 (2020), pp. 387-424.
45 Steven Haider and David Loughran. “T he Effect of the Social Security Earnings T est on Male Labor Supply: New
Evidence from Survey and Administrative Data,” Journal of Hum an Resources, vol. 43, no. 1 (2008), pp. 57-87.
46 Alexander M. Gelber et al., Using Non-Linear Budget Sets to Estimate Extensive Margin Responses: Method and
Evidence from the Social Security Earnings Test, National Bureau of Economic Research, Working Paper no. 23362,
revised June 2018.
47 Dale S. Bremmer and Randy Kesselring, “How Social Security’s Earning T est, Age and Education Affect Female
Labor Supply,” Atlantic Economic Journal, vol. 46 (2018), pp. 357-377.
Congressional Research Service
18

Social Security Retirement Earnings Test: How Earnings Affect Benefits

response to the 2000 RET repeal.48 This finding raises the question for policymakers of whether a
complete repeal of the RET (for those between age 62 and FRA) would affect the labor supply
decisions of slightly younger workers (i.e., those below age 62).
Research has not drawn an unambiguous conclusion on the impact of the RET on the labor supply
decision of older workers. The different data and methods and disparate population segments may
explain the inconclusive findings in various studies. However, as shown in some analysis, the
effect of the RET on the labor force participation and the aggregate labor supply is not negligible
for many workers who are eligible for Social Security retirement benefits and also those slightly
younger workers who are approaching retirement age. The removal of the RET could increase
labor force participation and aggregate labor supply by inspiring older workers to stay in the work
force and retire at a later age. It may also encourage older workers to re-enter the labor force after
time outside of it, although labor market rigidities sometimes prevent this attempt.
The RET and Equity Among Retired-Worker Beneficiaries
With respect to the RET in current law, Social Security beneficiaries can be categorized into one
of three groups: (1) those with earnings below the RET limit, (2) those affected by the RET with
the result being decreased monthly benefit payments, and (3) those with earnings high enough as
to result in no monthly benefit payment.49 Each group in this study may react to a potential repeal
of the RET differently. In general, the first group’s behavior would remain unchanged; the second
group’s behavior change is ambiguous depending on the value each beneficiary places on either
(1) increasing his or her work with the increased Social Security benefits due to the repeal of the
RET or (2) decreasing his or her work due to the increased benefits due to the repeal of the RET;
and the third group’s behavior would lead some to reduce work hours due to substantial y
increased income from receiving Social Security benefits that were previously withheld in their
entirety.
These differences have led some to argue that eliminating the RET would unequal y 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. Critics of the RET contend that
the RET 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 al ow or encourage some individuals to reduce their work hours.
The idea that the repeal of the RET benefits different earning levels in an inequitable way was
examined in a 2003/2004 report—one of the first studies to analyze the impacts of the 2000
legislation—which pointed out that increased total income was statistical y significant and large
in size for higher earners, but, for lower earners, there was no statistical significance.50 This
statistical y significant disparity among the retired-worker beneficiary population indicates that

48 Chen T engjiao, Yajie Sheng, and Yu Xu, “T he Anticipation Effect of the Earnings T est Reform on Younger
Cohorts,” Public Finance Review, vol. 48, no. 4 (2020), pp. 387-424.
49 Marjorie Honig and Cordelia Reimers, “Is It Worth Eliminating the Retirement T est?” The American Economic
Review, vol. 79, no. 2 (1989), pp. 103-107. (Cited for the basis of the rest of this paragraph, unless otherwise cited.)
50 Jae G. Song, “Evaluating the Initial Impact of Eliminating the Retirement Earnings T est ,” Social Security Bulletin,
vol. 65, no. 1 (2003/2004).
Congressional Research Service
19

Social Security Retirement Earnings Test: How Earnings Affect Benefits

high earners wil experience a more substantial benefit than low earners if the RET were to be
repealed. These findings were also replicated in a 2007 paper.51
Another equity-related consideration is whether some beneficiaries wil live long enough to fully
realize the higher benefit amounts stemming from the recomputation at FRA. When considering
the actuarial fairness of the recomputation, which is the idea that a worker with an average
lifespan wil earn back the benefits withheld due to the RET, workers with a shorter than average
lifespan may feel that the recovery of benefits is incomplete. Conversely, for those who live
longer than average, the recomputation may result in higher lifetime benefits that more than earn
back 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.52
These different effects of an RET repeal across the retired-worker beneficiary population present
chal enges for policymakers. Often, the argument in favor of the RET repeal is to assist those
with low earnings in avoiding unnecessary taxation and to incentivize working further into the
elder years. Although that view may be ignoring the benefit readjustment at FRA, it is assuming
that the impact on the entire retired-worker beneficiary population wil be universal y equal.
The RET and Benefit Claiming Behavior
Because the RET applies to persons who are younger than FRA, studies suggest that it may
discourage persons below the FRA from claiming benefits early. 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) al ows the worker to
recoup benefits withheld under the RET.
Numerous studies have found evidence that the RET does have an impact on the decision
concerning when to claim Social Security benefits. For example, a 2003 study examined persons
aged 62 and older during the 1973-1998 period and estimated that a $1,000 increase in the RET
threshold could increase the share of men aged 62 and older who claim Social Security benefits
by 0.7% to 1.6%, while eliminating the RET could increase that share by 5.2% to 13.5%.53 A
2007 study, which examined the 2000 elimination of the RET for men and women at or above
FRA, found an increase in benefit claims between 2% and 5% among men and women aged 65-
69, and an increase by 3%-5% among men and women who were reaching the age of 65.54 More
recent studies also showed that the repeal of the RET in 2000 for beneficiaries between FRA and
age 69 was followed by a temporary increase in benefit claims among persons aged 65-69 who
were working and had deferred claiming retired-worker benefits.55
There is other pertinent literature that helps to establish the impacts on benefit claiming and
receipt of a complete RET repeal, which is the focus of some policymakers. A 2003 study

51 Jae G. Song and Joyce Manchester, “How Have People Responded to Changes in the Retirement Earnings T est in
2000?” Social Security Bulletin, vol. 67, no. 1 (2007).
52 For more information regarding the relationship between life expectancy and income, please see CRS Report
R44846, The Growing Gap in Life Expectancy by Incom e: Recent Evidence and Im plications for the Social Security
Retirem ent Age.
53 Jonathan Gruber and Peter Orszag, “Does the Social Security Earnings T est Affect Labor Supply and Benefits
Receipt?” National Tax Journal, vol. 56, no. 4 (2003), pp. 755-773.
54 Jae G. Song and Joyce Manchester, “How Have People Responded to Changes in the Retirement Earnings T est in
2000?” Social Security Bulletin, vol. 67, no. 1 (2007).
55 Patrick J. Purcell, “Employment at Older Ages and Social Security Benefit Claiming, 1980-2018,” SSA, Research
and Statistics Note, No. 2020-01, April 2020; and CRS In Focus IF11115, Social Security Benefit Claim ing Age.
Congressional Research Service
20

Social Security Retirement Earnings Test: How Earnings Affect Benefits

predicted increased early take-up of benefits in the future if the RET were to be repealed for those
younger than FRA.56 Similarly, a 2004 study found that complete repeal of the RET would lead to
an increase of benefit take-up for married men by 10%.57 Likewise, a 2013 study found that RET
repeal could lead to significant increases (14.4% with assumed behavioral responses discussed
earlier) in beneficiaries becoming entitled earlier than their FRAs by 2050.58 From al of these
sources, the authors suggest that a complete elimination of the RET would lead to significant
early benefit claiming before FRA.
RET Repeal and the Impact on Poverty Rates
Another consideration for policymakers is the effect of the RET on poverty rates. When
considering the potential repeal of the RET, if more people claim at age 62 because of no
perceived tax, then more people would become subject to the permanent actuarial reduction in
benefits, which increases for every month of entitlement before the FRA. Without the RET, this
permanent reduction would no longer be lessened after FRA, unless there is a year of work in
which the salary would be substantial enough to impact the PIA calculation (in which case the
beneficiary would stil be subject to the permanent percentage reduction). If a hypothetical
beneficiary retires at the age of 64, three years before his or her hypothetical FRA, that
beneficiary is subject to a permanent reduction of his or her benefits by 20% per month. If the
repeal of the RET encouraged the hypothetical beneficiary to claim benefits earlier than he or she
otherwise would have under current law, then the beneficiary would be subject to more years of
permanently reduced benefits and at a higher reduction rate. For example, if that same
hypothetical beneficiary were to retire at the age of 62, five years before his or her hypothetical
FRA, he or she would be subject to a 30% permanent reduction and for two years longer than
before (those years age 62 and 63). This permanent reduction, cemented further without a later
RET readjustment, is the cause for poverty concerns later in a beneficiary’s life, particularly at
older ages.
Considerable evidence shows that poverty levels may increase in response to a complete repeal of
the RET. A 2000 paper estimates that the poverty impact may be significant; specifical y, the
paper estimates the following potential percentage point increases in poverty rates after potential
RET repeal: 2.3% among women, 3.6% among widow(er)s, 1.1% among married couples, 3.7%
among surviving-spouse beneficiaries, 2.4% among those aged 70-79, and 4.4% among those
aged 80-89. 59 In addition, more recent research from 2016 shows that the complete repeal of the
RET would increase the likelihood of very low incomes among women in their mid-70s and
older.60 While another study is not specific about the timeframe of poverty-related impacts of a
repeal, it projects that the negative impacts on poverty would occur.61 Certain Social Security

56 Caroline Ratcliffe, Jillian Berk, and Kevin Perese, et al., Impact of the Social Security Retirement Earnings Test on
62-64-Year-Olds, AARP, Washington, DC, December 2003, pp. 1 -48.
57 Alan L. Gustman and T homas L. Steinmeier, T he Social Security Retirement Earnings Test, Retirement and Benefit
Claim ing, National Bureau of Economic Research, Working Paper no. 10905, November 2004.
58 Anya Olsen and Kathleen Romig, “Modeling Behavioral Responses to Eliminating the Retirement Earnings T est”
Social Security Bulletin, vol. 73, no. 1 (2013). For poverty projections related to S. 2336, see Senator Marco Rubio’s
2014 proposal to eliminate the RET , available at the SSA’s Office of Research, Evaluatio n, and Statistics website at
https://www.ssa.gov/policy/docs/projections/policy-options/worker-benefit/eliminate-ret-2050.html.
59 Michael A. Anzick and David A. Weaver, “T he Impact of Repealing the Retirement Earnings T est on Rates of
Poverty” Social Security Bulletin, vol. 63, no. 2 (2000).
60 T heodore Figinski and David Neumark, “Does Eliminating the Earnings T est Increase the Incidence of Low Income
Among Older Women?,” Research on Aging, vol. 40, no. 1 (2016), pp. 27-53.
61 Caroline Ratcliffe et al., Impact of the Social Security Retirement Earnings Test on 62 -64-Year-Olds, AARP,
Congressional Research Service
21

Social Security Retirement Earnings Test: How Earnings Affect Benefits

provisions help provide the explanation for these variations in poverty rates across demographic
groups.
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 known as 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.62 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
account for months for which no benefit or a partial benefit was paid as a result of the RET.
Elderly beneficiaries, in particular, may face reduced living standards if their spouse claims
benefits before FRA, because of the actuarial reduction to benefits described above. In general,
women tend to outlive their husbands and are, therefore, more likely than men to receive Social
Security survivors’ benefits. If these survivors’ benefits are decreased permanently, women stand
to be adversely impacted by an RET repeal. 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.
RET Repeal and the Impact on the OASDI Program
An elimination of the RET for those below their FRA—as is proposed in the Senior Citizens’
Freedom to Work Act of 2019 (H.R. 2663)63—would have two opposing impacts on the financial
outlook of the Social Security program: (1) an increase in costs in the near-term and (2) a
decrease in costs in the long-term. In comparing these two impacts in aggregate, a net impact on
the program can be calculated.64
Near-Term Increase in Program Costs
An immediate increase in program costs would occur as a result of two populations receiving
increased benefits: (1) those who had benefits withheld due to the RET who would now receive
no reduction and, therefore, whose benefits would increase and (2) some of those who were
previously not receiving benefits and were planning to start entitlement later could elect to
receive benefits sooner than they otherwise would under current law. This latter group includes
those individuals who would now be able to receive benefits at age 62 and continue to work with

December 2003, pp. 1-48.
62 Social Security Act §202(e)(2)(D) and (f)(2)(D). For more information on the widow(er)’s limit provision, please see
CRS Report R41479, Social Security: Revisiting Benefits for Spouses and Survivors.
63 Similar proposals have been presented in previous congresses, including the Let Seniors Work Act of 2014 (S. 2336),
for which the Office of Research, Evaluation, and Statistics at the SSA prepared projections as to the potential worker
benefit changes: https://www.ssa.gov/policy/docs/projections/policy-options/worker-benefit/eliminate-ret-2030.html. In
response to the Coronavirus Disease 2019 (COVID-19) pandemic and the concerns that the RET may discourage
retired health care and other essential workers from providing needed services during the pandemic, lawmakers have
proposed to exempt certain earnings in 2020 from the RET . For more information, see CRS Insight IN11352, Social
Security Retirem ent Earnings Test (RET): Earnings Exem ption for COVID-19-Related Work Response.
64 Letter from Stephen C. Goss, Chief Actuary at the Social Security Administration, to Representative Jackie
Walorski, U.S. House of Representatives, May 14, 2019, T able 1b, at https://www.ssa.gov/OACT /solvency/
JWalorski_20190514.pdf (Cited as SSA Estim ates for Repeal of the RET for the basis of the rest of this section, unless
otherwise cited.) T he forthcoming analysis is based upon this letter. It is assumed the elimination begins in 2020.
Congressional Research Service
22

Social Security Retirement Earnings Test: How Earnings Affect Benefits

no reduction in benefits under the RET, though they would stil be subject to early retirement
benefit reductions.
In 2019, roughly 450,000 beneficiaries were affected by the RET and the early retirement
reduction mentioned earlier.65 In addition, SSA’s Office of the Chief Actuary (OCACT) estimated
that, in 2019, out of the 5 mil ion worker beneficiaries between age 62 and 65 who were eligible
for retired-worker benefits but have delayed entitlement and would have earnings over the RET
thresholds, 1.7 mil ion would apply for benefits earlier as a result of the RET repeal.66
Long-Term Decrease in Program Costs
Although eliminating the RET would increase short-term program costs, there would also be a
decrease in program costs in the long run. This decrease in program costs stems primarily from
the increased incidence of beneficiaries becoming subject to the actuarial reduction in benefits for
early retirement. Because this reduction is intended to be actuarial y fair over the average lifetime
and, seemingly, would not result in decreased lifetime benefits, the OCACT points out that the
“overal net decrease in benefits occurs because of changes over time in life expectancy and
interest rates.”67 This statement highlights, again, the correlation between life expectancy and
lifetime Social Security benefits.
When considering this in the context of the numbers mentioned above, the 450,000 beneficiaries
affected by the RET and the early retirement actuarial benefit reduction would al receive
increased benefits immediately, but they would no longer be subject to an increase in benefits at
FRA due to the RET readjustment. As a result, they would receive lower monthly benefits for the
rest of their lives. This impact, driven by the OCACT’s prediction of future changes in life
expectancy and interest rates, would result in program savings in the long-term. OCACT predicts
that 1.7 mil ion workers (of the 5 mil ion referenced earlier) would now claim benefits before
FRA, which would lead to an immediate increase in total benefits paid by Social Security;
however, these new beneficiaries would al receive an early retirement benefit reduction of a
permanent nature. According to the OCACT’s letter, the permanent reduction in monthly benefit
levels would, on average, more than offset the value of additional benefit payments from earlier
claiming over the long run.
Aggregate Results
In the short run, the OCACT used a 10-year outlook on the proposal using nominal dollars (as
opposed to present value dollars).68 Within this outlook, the OCACT estimated an average $19.91
bil ion increase in Old-Age, Survivors, and Disability Insurance (OASDI) costs per year over the
2020-2029 period. This included projected cost increases exceeding $20 bil ion each year from
2020 through 2027.
These annual cost increases were projected to be al eviated by 2038 when costs decline, resulting
in program savings.69 The OASDI program would continue to save money—through cost
decreases—throughout the remainder of the 75-year projection period (2019-2093).

65 SSA Estimates for Repeal of the RET, p. 2.
66 SSA Estimates for Repeal of the RET, p. 3.
67 SSA Estimates for Repeal of the RET, p. 3.
68 SSA Estimates for Repeal of the RET, T able 1b.n. (Cited as the basis for the rest of this paragraph.)
69 SSA Estimates for Repeal of the RET, T able 1b. (Cited as the basis for the rest of this paragraph.)
Congressional Research Service
23

Social Security Retirement Earnings Test: How Earnings Affect Benefits

When considering both the financial impact and the time over which that impact occurs, the
OCACT letter referenced above concluded that, over the long-range projection period of 75 years,
elimination of the RET completely would lead to an improvement in the “long-range OASDI
actuarial deficit by 0.03% of taxable payroll” and a reduction in the “annual deficit for the
OASDI program by 0.11% of payroll for 2093.”70 Stated differently, the elimination of the RET
would reduce the trust funds’ long-term funding shortfal by about 1%, with the funding shortfal
in 2093 reduced by about 3%.71
Conclusion
Original y, the RET was created—and, largely, stil exists—in an effort to abide by long-standing
insurance principles that require a significant loss to pay benefits. For Social Security retirement
benefits, the RET quantifies a significant loss as occurring when earnings drop below the
earnings thresholds. Upon FRA, benefits are recomputed to restore benefits withheld due to the
RET. However, because the RET is unpopular among many beneficiaries, and may be seen as a
“tax” or as a withholding of a benefit they have “bought and paid for,” Congress has legislated
changes to the RET throughout program history (specifical y, to change the age limit, the earnings
thresholds, and the al -or-nothing nature). Recently, a complete repeal of the RET has been the
subject of legislative attention.
As the research suggests, a complete RET repeal is likely to increase the hours worked for certain
populations (such as those with lower incomes near RET thresholds) and decrease the hours
worked for others (such as those with higher incomes for whom the RET withholds the entirety of
the year’s benefits). And it may also increase the overal labor force participation rate and
aggregate labor supply by inspiring some older workers to work longer before retiring or
encouraging retired workers to re-enter the labor force (although labor market rigidities may
sometimes prevent this attempt). Furthermore, research suggests that a repeal of the RET is likely
to incentivize the early take-up of benefits, which would lead to a higher frequency of
permanently reduced benefits due to actuarial reductions for early retirement. With no
recalculation for later benefits remaining after RET removal, these lifetime lower benefits would
increase the likelihood of poverty incidence for certain groups, especial y women and those aged
80-89.
According to the OCACT’s cost estimate, eliminating the RET would slightly reduce the OASDI
cost. Increased program costs for benefits paid to individuals under the FRA would be more than
offset by the lower monthly benefits due to early retirement benefit reductions because of changes
over time in life expectancy and interest rates.

70 SSA Estimates for Repeal of the RET, p. 1. T he long-range financial status of the OASDI program is measured by the
actuarial balance. T he actuarial balance is the difference between the sum m arized cost rate (the ratio of the present
value of cost to the present value of the taxable payroll for the projection period) and the sum m arized incom e rate (the
ratio of the present value of scheduled non-interest income to the present value of taxable payroll for the projection
period) over a 75-year projection horizon. The summarized cost rate and the summarized income rate are expressed as a
percentage of taxable payroll (the weighted sum of taxable wages and taxable self-employment income). When this is
multiplied by the OASDI payroll tax rate, it results in the total amount of payroll taxes. (2019 Annual Report, pp. 243-
244.)
71 In a recent cost estimate for repealing the RET beginning in 2023, SSA’s OCACT estimates that the proposal would
reduce the trust funds’ long-term funding shortfall by about 1%, with the funding shortfall in 2095 reduced by about
3%. See SSA, OCACT , “ Provisions Affecting Level of Monthly Benefits,” Option B7.11, at https://www.ssa.gov/oact/
solvency/provisions/benefitlevel.html. Estimates are based on assumptions in the 2020 trustees report. The 2020
intermediate assumptions reflect the trustees’ understanding of Social Security at the start of 2020. T hus, they do not
include potential effects of COVID-19.
Congressional Research Service
24

link to page 30 Social Security Retirement Earnings Test: How Earnings Affect Benefits

Appendix A. Social Security Auxiliary Benefits
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. That maximum family benefit amount is a
function of the worker’s PIA and is general y between 150% and 188% of that PIA.72
In general, two ways exist 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 wel 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 who have their own earnings, even if they do not have
their own retired worker benefits, are subject to the same annual exempt amounts and benefit
reduction rates on their auxiliary benefits that apply to worker beneficiaries. An auxiliary
beneficiary qualifying for benefits based on another beneficiary’s work record (e.g., a spouse or a
parent) and on his or her own work record is deemed dual y entitled.73
The RET does not apply to disabled beneficiaries, including disabled auxiliary beneficiaries.
Table A-1 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.74 Because
neither beneficiary wil 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:75
 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.
 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
from his or her own earnings 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).

72 For more detailed information on auxiliary benefits and the implementation of family maximum rules, please see
CRS Report R42035, Social Security Prim er.
73 For more information on dually entitled beneficiaries, please see CRS Report R41479, Social Security: Revisiting
Benefits for Spouses and Survivors.
74 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 (who does not have enough Social Security -covered employment to
qualify for a retirement benefit) who is currently working but does not receive his or her own retired-worker benefit.
75 20 C.F.R. §404.434(b)(3).
Congressional Research Service
25

link to page 11 link to page 33 Social Security Retirement Earnings Test: How Earnings Affect Benefits

Table A-1. Hypothetical Example of the Application of the RET for a Couple
Consisting of a Worker Beneficiary and an Auxiliary (Spousal) Beneficiary, 2021
Spouse #1: Worker
Spouse #2: Auxiliary
Step
Beneficiary
Beneficiary
1. Social Security retired-worker benefit, based
on his or her own work record
$2,000
None
2. Social Security auxiliary (spousal) benefit
None
$1,000
3. Calculation of earnings above annual threshold

Predicted earnings in 2021
$33,000
$33,000
RET threshold in 2021
$18,960
$18,960
Earnings above threshold
$14,040
$14,040
4. RET Charge
$7,020
$7,020
(one-half of earnings
(one-half of earnings above the
above the threshold)
threshold)
5. Application of the RET

January and February monthly benefits: The
worker beneficiary’s RET charge is applied
to the total family benefit of $3,000 for each
$0
$0
month.
March monthly benefit: The balance of the
worker beneficiary’s RET charge ($1,020 =
$7,020 -$6,000) is pro-rated between the
beneficiaries in proportion to their original
entitlement amount, so $680 is applied to
the worker beneficiary and $340 is applied
$1,320
$0
to the auxiliary beneficiary. In addition, $660
of the auxiliary beneficiary’s RET charge is
applied to the auxiliary beneficiary’s benefit
only, reducing it to zero for this month.
April through September monthly benefits:
The worker beneficiary receives ful monthly
benefits. The auxiliary beneficiary’s monthly
$2,000
$0
benefit is reduced to zero by his or her own
RET charge.
October monthly benefit: The worker
beneficiary receives ful monthly benefits.
The auxiliary beneficiary’s RET balance of
$2,000
$6400
$360 ($7,020 - $6,660) is charged to his or
her own benefit.
November through December monthly
benefits: ful benefits are paid to both
$2,000
$1,000
beneficiaries.
Source: Congressional Research Service.
Notes: The starting benefit amounts include reductions for retirement before FRA and 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 (see “The Grace Year Provision” section or
Appendix C for an example). Both beneficiaries are presumed to be below FRA throughout the calendar year.
Congressional Research Service
26

link to page 31 Social Security Retirement Earnings Test: How Earnings Affect Benefits

Table A-2 summarizes the applicability of the RET to worker beneficiaries and auxiliary
beneficiaries when either type of beneficiary has earnings above the exempt amount.
Table A-2. Summary of the 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
The worker beneficiary’s own
Only the auxiliary benefit is
benefit is reduced.
reduced, not the worker
beneficiary’s benefit.
Auxiliary Beneficiary: Spouse
Auxiliary benefits to spouses are
Only the auxiliary benefit is
reduced for the worker
reduced, not the worker
beneficiary’s earnings above the
beneficiary’s benefit.
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
Spouse
reduced for the worker
reduced, not the worker
beneficiary’s earnings above the
beneficiary’s benefit.
exempt amount if the couple has
been divorced for at least two
years.
Auxiliary Beneficiary: Child
Auxiliary benefits to children are
Only the auxiliary benefit is
reduced for the worker
reduced, not the worker
beneficiary’s earnings above the
beneficiary’s benefit.
exempt amount, which are charged
against the total family benefit.
Auxiliary Beneficiary: Mother
Not applicable (worker beneficiary
The mother’s or father’s benefit is
or Father with Qualifying Child
is deceased).
reduced.
in Care (child under age 16 or
disabled)
Auxiliary Beneficiary:
Not applicable (worker beneficiary
The widow(er)’s benefit is reduced.
Widow(er)
is deceased).
Auxiliary Beneficiary: Parent
Not applicable (worker beneficiary
The parent’s benefit is reduced.
is deceased).
Source: SSA, Social Security Handbook, Chapter 18: Reduction or Nonpayment of Social Security Benefits,
1804 How Excess Earnings Are Charged Against Benefits, April 9, 2010, at https://www.ssa.gov/OP_Home/
handbook/handbook.18/handbook-1804.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
that are based on a third person’s work record. As noted previously, disabled beneficiaries are subject to
different rules and limitations regarding earnings.
Congressional Research Service
27

Social Security Retirement Earnings Test: How Earnings Affect Benefits

Appendix B. Annual Exempt Amounts Under the
Social Security Retirement Earnings Test, Calendar
Years 2007-2021
The RET annual exempt amounts are indexed to average wage growth in the economy. An
exception, however, is that the annual exempt amounts are not increased in a year during which
no Social Security cost-of-living adjustment (COLA) is payable. In some years—such as, 2010,
2011, and 2016—there were no Social Security COLAs payable, so the RET exempt amounts 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 B-1. Annual Exempt Amounts Under the Social Security Retirement Earnings
Test, Calendar Years 2007-2021
Calendar Year
Prior to Year of Attaining FRA
During Year of Attaining FRA
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
2012
$14,640
$38,880
2013
$15,120
$40,080
2014
$15,480
$41,400
2015
$15,720
$41,880
2016
$15,720
$41,880
2017
$16,920
$44,880
2018
$17,040
$45,360
2019
$17,640
$46,920
2020
$18,240
$48,600
2021
$18,960
$50,520
Source: Social Security Administration, “Exempt Amounts Under The Earnings Test,” at
http://www.socialsecurity.gov/OACT/COLA/rt ea.html.

Congressional Research Service
28

link to page 33 link to page 33 link to page 33 link to page 33 link to page 33 Social Security Retirement Earnings Test: How Earnings Affect Benefits

Appendix C. The Grace Year Provision Illustrated
Table C-1. Hypothetical Example of the Application of the Grace Year Provision in
the First Year of Entitlement, 2021
Worker Beneficiary with Entitlement Beginning
Step
at Age 62 in September of Calendar Year
1. Salary in this calendar year

January 1—August 31
$48,000
Salary in September
$1,300
Salary in October
$1,600
Salary in November
$900
Salary in December
$2,100
2. Identify applicable RET threshold

As this entitlement does not come in a calendar
year wherein the retiree is reaching FRA, the
$18,960
lower threshold applies
Determine the monthly amount of that threshold
$1,580a
3. Social Security monthly benefit to be received upon
entitlement
$2,000
4. Calculate the Social Security benefit to be received in

each calendar month
January through August
N/A—not yet entitled at the early retirement age of 62
September
$2,000b
October
$0c
November
$2,000d
December
$0e
Source: Congressional Research Service.
Notes: This example assumes that the worker beneficiary receives benefits based on his or her own work
record only. The starting benefit amounts include reductions for retirement before FRA and exclude other
reductions that may apply.
a. This value is calculated by dividing the annual threshold ($18,960) by 12.
b. Salary = $1,300, which is less than the RET limit of $1,580, so the worker receives the entire Social Security
benefit plus his or her earnings.
c. Salary = $1,600, which is more than the RET limit of $1,580, so the worker receives his or her earnings but
no Social Security benefit.
d. Salary = $900, which is less than the RET limit of $1,580, so the worker receives the entire Social Security
benefit plus his or her earnings.
e. Salary = $2,100, which is more than the RET limit of $1,580, so the worker receives his or her earnings but
no Social Security benefit.

Congressional Research Service
29

Social Security Retirement Earnings Test: How Earnings Affect Benefits

Author Information

Zhe Li

Analyst in Social Policy

Acknowledgments
This report was originally co-authored by CRS specialist Dawn Nuschler and former CRS analyst Alison
Shelton and updated by former CRS research associate Tyler Welch.

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should n ot be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.

Congressional Research Service
R41242 · VERSION 14 · UPDATED
30