Why Is There An Earnings Limit For SSA Retirement?

Ever wonder why annual earnings from gross wages or net self-employment can reduce the amount of Social Security retirement received (now only if you are younger than full retirement age)?

According to the history section of the Social Security website, the retirement earnings test, also called the annual earnings test, was included as part of the 1935 original bill submitted by President Roosevelt to Congress.  That bill language stated,No person shall receive such old-age annuity unless . . . He is not employed by another in a gainful occupation.” This was the retirement earnings test provision and very important because actuarial calculations underlying the Administration’s proposal were based on the assumption that a retirement test would be included in the law.

As to be expected, the retirement test was part of overall discussions about the proposed legislation. It remained in the final version of the Social Security Act of 1935 as “Whenever the Board finds that any qualified individual has received wages with respect to regular employment after he attained the age of sixty-five, the old-age benefit payable to such individual shall be reduced, for each calendar month in any part of which such regular employment occurred, by an amount equal to one month’s benefit.”

Over years, there were many changes to the retirement test. It was first scaled-back in the 1950 Amendments, which exempted workers age 75 and older from it. The exempt age was then reduced to 72 in 1954, and to age 70 and older in 1977.

From the beginning of Social Security in 1935, until The Senior Citizens’ Freedom to Work Act of 2000, retirement benefits have been conditional on the requirement that the beneficiary be substantially retired. That legislation, signed into law by President Clinton on April 7, 2000, was a historic change in the Social Security retirement program, eliminating the retirement earnings test for beneficiaries at or above their full retirement age (FRA). Effectively, once at full retirement age, this legislation repealed the requirement that a person be substantially retired in order to receive full Social Security retirement benefits. The retirement test still applies to people below FRA.

Annual retirement test information for 2013 is part of the SSA Retirement Planner information.