So you’re 62 years old and have been downsized, laid off or forced into early retirement because of the struggling economy. And you think to yourself, “I’ll take early retirement under Social Security, which will provide a small but reliable (let’s hope!) income, and get a job that will pay maybe $20,000 or $25,000 a year to make ends meet.”
In a word: fugetaboutit!
That’s because Social Security will withhold one dollar for every two you make above $14,160 this year. It’s called the Social Security earnings limit, and it exists to discourage older Americans from taking early retirement under Social Security.
The original earnings limit was created with the passage of Social Security in 1935 to fulfill social policy, not economic policy. Jobs were scarce during the Great Depression; and the earnings limit was intended to encourage retirees to leave the workforce to open up jobs for younger workers.
Initially the penalty applied to all seniors. Then:
· In 1950 Congress exempted retirees age 75 and older.
· That threshold was lowered to age 72 in 1954 and 70 in 1983.
· And it was eliminated for seniors age 65 and over in 2000.
Thus, seniors older than the threshold, which is now at 66 (and rising), can earn as much as they want without a penalty.
But not early retirees. If you are between the ages of 62 and 66 and you want to take early retirement under Social Security, you can—but your income is limited to $14,160. Make more than that and you will face in essence a 50 percent marginal tax rate on your Social Security benefits.
Defenders of the earnings penalty—which historically included AARP—claim it encourages people to stay in the workforce. Nonsense, the average retirement age is 63.6; and the large majority of Americans formally retire—though they might still work some—before the age of 66.
What the earnings limit does is penalize productive older workers who may need additional income to make ends meet. The Obama administration did not create this problem—though its economic policies arguably have made it worse—but it can end this penalty, and end it now.