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January 11, 2022
Social Security Retirement Earnings Test Overview
Background
may also increase due to additional earnings.) This
Social Security is a work-related, federal insurance program
automatic benefit recomputation at FRA effectively adjusts
that provides monthly cash benefits to workers and their
(lessens) the actuarial reduction for early retirement.
eligible family members in the event of the worker’s
retirement, disability, or death. Social Security retirement
Table 1 shows a hypothetical beneficiary who was affected
benefits received between age 62 and the full retirement age
by the RET. The beneficiary is assumed to have an FRA of
(FRA)—which falls between 65 and 67, depending on year
67 and claim benefits at age 64. His or her monthly benefit
of birth—are generally subject to an actuarial reduction for
would be $2,000 after applying the actuarial reduction for
early retirement and may also be reduced by the Retirement
early retirement (a $500 reduction per month). The person
Earnings Test (RET) if the beneficiary has earnings that
is assumed to work (earning about $51,560 per year) while
exceed an annual threshold. (The RET does not apply to
receiving Social Security benefits from ages 64 to 66, and
Social Security disability beneficiaries.)
his or her benefits would be withheld by the RET for eight
months per year for three years (see table note d). When the
The Social Security Administration’s Office of the Chief
beneficiary attains FRA, the benefit would be recomputed
Actuary (OCACT) estimated that about 520,000
and the beneficiary would receive $2,333 per month (or
beneficiaries below FRA (or about 11% of all beneficiaries
$333 more per month) for his or her remaining lifetime.
below FRA) would have had their benefits reduced or
completely withheld due to the RET in 2019.
Table 1. Hypothetical Example of a Social Security
Beneficiary Affected by the RET (FRA = 67)
How Does the RET Work?
Under the RET, a beneficiary who is below FRA and will
Benefits and
not attain FRA during the calendar year is subject to a $1
Description
Adjustments
reduction in benefits for every $2 of earnings above an
Social Security monthly benefits before
annual exempt amount ($19,560 in 2022). During the
actuarial reduction for early retirement
$2,500
calendar year in which a beneficiary attains FRA, he or she
(for entitlement at FRA)
is subject to a $1 reduction in benefits for every $3 of
earnings above a higher threshold ($51,960 in 2022). Both
Benefit reduction for early retirement
thresholds are typically increased annually with growth in
Percentage of actuarial reduction in
the national average wage.
initial benefits for entitlement at age 64
20%a
(5/9 of 1% per month for 36 months)
If a beneficiary is affected by the RET, his or her monthly
Social Security benefit may be temporarily reduced, in part
Monthly benefits after actuarial
$2,000b
or in full, depending on the total applicable reduction.
reduction for early retirement
The RET in Conjunction with Early Retirement
Temporary benefit reduction due to RET
Reduction
RET charges per year (ages 64-66)b
$16,000c
When a worker elects to claim Social Security benefits
before FRA, his or her monthly benefits are subject to a
Months per year for benefits withheld
8 monthsd
permanent actuarial reduction. In the initial benefit
due to RET
computation, retirement benefits are reduced for early
Total months in three years for RET
retirement by a fraction of the worker’s basic benefit for
24 months
charges
each month of entitlement before FRA. The RET is applied
to monthly benefits only after they have been reduced by
Benefit recomputation at FRA
the early retirement actuarial adjustment. Both the
Percentage given back to beneficiary for
permanent reduction for early retirement and the temporary
those RET-impacted months (5/9 of 1%
13.33%e
RET reduction are applied to beneficiaries below FRA.
per month for 24 months)
Restoration of RET-Withheld Benefits Upon
The new effective actuarial reduction
Attaining FRA
6.67%f
for early retirement
At FRA, beneficiaries begin to recoup the benefits that were
The new permanent monthly Social
lost due to the RET. An affected beneficiary’s monthly
$2,333g
Security benefit
benefit is recomputed, and the dollar amount of the monthly
benefit is increased based on the number of months subject
Source: CRS.
to the RET, when he or she attains FRA. (Monthly benefits
Notes: The annual adjustments for cost-of-living and RET exempt
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Social Security Retirement Earnings Test Overview
amounts, and the potential increase in monthly benefits due to
A small group of early retirees who were not working
additional earnings, are not shown.
may choose to go back to work.
a. This amount is calculated as 5/9% X 36 = 20%.
b. This is calculated as $2,500 X (1-20%) = $2,000.
Because of these mixed effects, research has not drawn a
c. In 2022, for a Social Security beneficiary below FRA throughout the
clear conclusion on the overall impact of eliminating the
year, earnings of $51,560 would result in a RET charge of ($51,560-
RET for all beneficiaries on aggregate labor supply.
$19,560) ÷ 2 = $16,000.
d. The entire monthly benefit of $2,000 from Jan to Aug would be
On Social Security Claiming Behavior and Poverty
withheld due to the RET charge ($2,000 X 8 = $16,000).
Because the RET applies to persons who are younger than
e. This amount is calculated as 5/9% X 24 = 13.33%.
FRA, studies suggest that it may discourage persons below
f. This amount is calculated as 20% - 13.33% = 6.67%.
the FRA from claiming benefits early. Some workers
g. This is calculated as $2,500 X (1-6.67%) = $2,333. Benefit amounts
perceive the RET as a “tax” on benefits received before
are rounded down to the next lowest dollar.
FRA, even though the recomputation of benefits at FRA
allows the worker to recoup benefits withheld under the
The RET and Life Expectancy
RET. Numerous studies have found evidence that the RET
Typically, the RET reduction before FRA would be
affects Social Security claiming decisions and suggest that a
recouped gradually through a higher Social Security annual
complete elimination of the RET would lead to significant
benefit over a certain number of years after FRA. The RET
early benefit claiming before FRA.
is actuarially fair (on average) in its readjustment of
benefits at FRA. That is, over the course of the average
Another consideration for policymakers is the effect of the
person’s lifespan, after reaching FRA the beneficiary can
RET repeal on poverty rates. If more people claim at age 62
expect to receive all benefits withheld due to the RET.
because of the elimination of the RET, then more people
would become subject to the permanent actuarial reduction
Beneficiaries, however, may have a life expectancy that
in benefits for early claiming. Without the RET, this
differs from the average. Workers with a shorter-than-
permanent reduction would no longer be lessened after
average lifespan may feel that the recovery of benefits
FRA, unless there are additional years of earnings that
initially reduced under the RET is incomplete (e.g., certain
would increase benefits, although the permanent percentage
lower-income workers and minorities with shorter life
reduction for early claiming would still apply. This
expectancies). Conversely, for those who live longer than
permanent benefit reduction, cemented further without a
average, the recomputation may result in higher lifetime
later RET readjustment, may be a cause for poverty
benefits that more than offset the initial benefit reductions
concerns later in a beneficiary’s life.
under the RET.
On Social Security Program Solvency
Selected Impacts of Eliminating the RET
Elimination of the RET for those below their FRA would
for All Beneficiaries
have an unclear effect on Social Security revenue from
payroll taxes and would have two opposing impacts on the
On Labor Supply Decisions
financial outlook for the Social Security program:
In 2000, P.L. 106-182, the most recent legislative RET
change, eliminated the RET for beneficiaries beginning
1. An immediate increase in program costs would
with the month they attain FRA. Research based on the
occur as a result of two populations receiving
change in 2000 suggests that the elimination of the RET for
increased benefits: (1) those who had benefits
all beneficiaries (including those below FRA) may affect
withheld due to the RET would now receive no
workers’ labor supply decisions in several ways:
reduction and, therefore, their benefits would
increase, and (2) some of those who were
Early retirees who were working and having earnings
previously not receiving benefits and were
below the RET annual thresholds may choose to work
planning to start entitlement later could elect to
more hours.
receive benefits sooner than they otherwise would
under current law.
Early retirees whose Social Security benefits were
2. A decrease in program costs would stem primarily
partially withheld by the RET would see an increase in
from the increased incidence of beneficiaries
their Social Security monthly benefits. Their behavioral
becoming subject to the actuarial reduction in
change is ambiguous depending on the value each
benefits for early retirement.
beneficiary places on either (1) increasing his or her
OCACT estimates that the permanent reduction in monthly
work with the increased Social Security benefits or (2)
benefit levels would, on average, more than offset the value
decreasing his or her work (e.g., enjoying more leisure)
of additional benefit payments from earlier claiming over
due to the increased benefits.
the long run, resulting in some net savings to the program
(1% decrease in the program’s long-term funding shortfall
Early retirees whose Social Security benefits were fully
based on the 2021 trustees report).
withheld by the RET (resulting in no monthly benefit
payment) may reduce work hours due to substantially
Additional Information
increased income from receiving Social Security
CRS Report R41242, Social Security Retirement Earnings
benefits that were previously withheld in their entirety.
Test: How Earnings Affect Benefits.
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Social Security Retirement Earnings Test Overview
IF12014
Zhe Li, Analyst in Social Policy
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