Should the social security income test have the ax? – The crazy fool

Social Security provides a valuable financial safety net for older Americans, helping retirees replace the income they previously earned from work. Yet, there is no need to stop working before touching social security, and more and more people are asking for Social Security as soon as possible, even if they continue to remain in office.

However, it is difficult to claim social security while you are still working. The social security earnings test applies to people who have not yet reached the retirement age and who are applying for early retirement benefits while working. However, as one decision maker recently pointed out, the earnings test has its own drawbacks. It is worth considering eliminating the earnings test, even if such a measure would have related consequences.

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A new controversy on social security

Alicia Munnell is the director of the Boston College Retirement Research Center. She recently wrote about the impact of the Social Security Income Test. According to Munnell, the best way to ensure that older Americans have the income they need is to remove the barriers that prevent them from choosing to work as long as possible. The longer people stay in the workforce, the easier it is for them to meet their financial needs once they retire.

The earnings test removes social security benefits in certain circumstances. Each year, new Social Security income limits come into effect, setting the maximum that a person who is younger than the retirement age can earn before losing part of his or her benefits from the Social Security. In particular, the following rules apply for 2019:

• If you are younger than the age of full retirement in 2019, the maximum salary for 2019 is $ 17,640. On top of that, you will lose $ 1 in annual Social Security benefits for every additional $ 2 you earn. If you start receiving benefits in 2019, the monthly limit is $ 1,470 for the period of time you receive Social Security.
• Those who reach retirement age during the year have higher limits and less expensive forfeiture provisions. For 2019, you will lose $ 1 in annual benefits for every $ 3 you earn beyond the $ 46,920 annual limit. But once you reach retirement age, earnings after that date do not count toward the total.
• If you plan to retire in the middle of the year, another rule applies. Even if your earnings during work were so high that they would deprive you of your benefits for the entire year, you can still ask for monthly checks for the months you are not working.

If it sounds complicated, it's because that's it. Munnell says that many people do not understand the earnings test and that it deters people from working during social security – and claiming social security as long as they work.

So, getting rid of the earnings test would be a good thing?

It is this last point that leaves Munnell in a dilemma. On the one hand, if eliminating the earnings test required more people to work longer, this would be a net benefit to the financial situation of older Americans. But if eliminating the earnings test causes more people to apply for social security before they retire, this could potentially lead to more people asking for it as soon as possible.

Anticipated claims have an unrelated impact on financial security by reducing the amount of benefit payments. This in turn affects the amount that surviving spouses receive after the death of a working spouse. Since surviving spouses are often in the most precarious financial position among retirees, any reduction in these payments could have a negative effect that outweighs the benefits of longer participation in the labor force.

Nevertheless, it has been proven in the past that the elimination of the earnings test could increase the employment levels of older Americans. Previously, the earnings test applied to all beneficiaries, but in 2000, it was removed for those who had reached the retirement age. The impact of this change was a 3 percentage point increase in labor force participation and a 15% increase in earnings.

The question of what to do with the social security income test is more complicated than it seems at first glance. However, if the top priority to help older Americans be as financially stable as possible during their golden years, remove any perceived barriers to work – whether or not it is meant to be an obstacle – could be worthwhile.

Live the life you want

Deciding when to stop working can have an impact on your social security, but you should not let the potential benefit reductions prevent you from making the right life decision. By being aware of the many options available to you not to lose your benefits, you will be able to manage your career exactly as you wish.