Social Security: Proposed Changes to the Earnings Test Page: 5 of 6
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"delayed retirement credit" (DRC), which increases their benefits by a certain percentage
for each month they do not receive benefits. When the DRC increases to two-thirds of one
percent per month in 2008, its value will be approximately actuarial; that is, the additional
benefits a person would receive over his or her lifetime due to the DRC would be
approximately equal to the value of the benefits lost due to the earnings test. Thus, the
long-range cost of eliminating the earnings test for those above the full retirement age was
offset by the savings produced by fewer payments of DRCs. Similarly, if the test were
repealed for retirees under the full retirement age, there would be only a very small long-
range cost to the program (0.01 % of taxable payroll), again because of offsetting effects.
Workers and their spouses who retire before the full retirement age have their benefits
"actuarially reduced," meaning that a person will receive approximately the same value
of benefits over a normal lifetime regardless of whether he or she began to receive
benefits before or at the full retirement age. Workers who retire today exactly at age 62
receive 76.67% of the benefit they would receive at the full retirement age. However, if
benefits are withheld because of the earnings test, under the law their benefits are
recomputed at the full retirement age to remove the actuarial reduction for those periods
in which they did not receive benefits. Thus, similarly to the case with the DRCs, the
long-range cost of eliminating the earnings test for those below the full retirement age
would be almost entirely offset by the savings produced by eliminating the recomputation
of benefits at the full retirement age.
Arguments against liberalizing or eliminating the earnings test. Those
who defend the earnings test take the position that benefits should be paid only when the
risks insured against by the Social Security program actually occur, e.g., the loss of earned
income when one retires. As the program does not pay disability benefits to those who
are not disabled, nor Medicare benefits to those who are not ill, similarly it should not pay
full benefits for those who are not truly "retired." They point out that the program is not
intended to be a savings plan that provides an annuity upon retirement but rather is
intended to be a form of insurance that provides benefits upon the occurrence of the
contingency insured against (loss of income due to the retirement of the worker).
Even so, proponents say, the provision already has been liberalized to the point
where most working recipients are better off in retirement than younger workers. Take
the example of someone who files for retirement at age 65 and two months in 2003 but
continues to work. He or she would receive all of his or her Social Security benefit
which, in combination with his or her earnings, would provide more income than before
he or she "retired" (and this does not count the value of Medicare coverage and the tax
breaks from receiving tax-advantaged Social Security benefits and extra deductions for
Thus, defenders of the test maintain that, contrary to allegations that the test causes
hardship, on the whole it actually is fairly generous, and to liberalize or abolish it would
further erode the concept that Social Security is designed to replace lost earnings. They
assert that repeal or further liberalization of the test would benefit mainly the well-off,
particularly people who want to continue to work full time at their regular jobs. Rather,
it would pay a premium to people who are fortunate enough to be able to work after
becoming eligible for retirement, as opposed to those who are forced to retire because of
health or other compelling reasons.
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Social Security: Proposed Changes to the Earnings Test, report, June 23, 2003; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc809231/m1/5/: accessed January 16, 2019), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.