Social Security earnings test can reduce benefits for retirees who work

Key Points:

• A bipartisan bill called the Senior Citizens' Freedom to Work Act, introduced by Sen. Rick Scott and Rep. Greg Murphy, aims to repeal the Social Security retirement earnings test that reduces benefits for early retirees who continue working.
• The retirement earnings test currently deducts $1 in benefits for every $2 earned above $24,480 annually for those under full retirement age, and $1 for every $3 earned above $65,160 for those reaching full retirement age in 2026.
• Proponents argue the test is outdated and acts as a disincentive for seniors to work, especially impacting middle- and lower-income earners, while critics caution that repealing it could affect Social Security’s solvency in the short term.
• The retirement earnings test was originally designed during the Great Depression to encourage older Americans to leave the workforce, but many beneficiaries misunderstand it as a permanent penalty rather than a temporary reduction that is later credited.
• Until any legislative changes occur, beneficiaries under full retirement age should carefully consider how working impacts their benefits and taxes, using tools like the Social Security Administration’s online calculator to plan accordingly.