Earnings Limit for Beneficiaries Under the Full Retirement Age

Background

The Social Security earnings limit reduces benefits for people whose work earnings exceed a certain threshold. The earnings limit rises annually with average wage growth. The limit has long been a source of both confusion and frustration for beneficiaries and an administrative problem for the Social Security Administration.

In 2000 Congress eliminated the earnings limit for workers who have reached full retirement age. The earnings limit for people who claim benefits before reaching the full retirement age remains in effect. For workers below the full retirement age, benefits are reduced by $1 for every $2 earned over the threshold ($16,920 in 2017). In the year the worker reaches the full retirement age, benefits are reduced by $1 for every $3 earned over the threshold ($44,880). The threshold applies only to earnings made in the months prior to turning the full retirement age. Workers who receive reduced benefits because of the earnings limit will receive increased benefits once they reach the full retirement age. Over a person’s lifetime, the increase in benefits will offset the reduction due to the earnings limit.

Some policymakers advocate raising or eliminating the earnings limit for those younger than the full retirement age. This could induce some individuals, who have already claimed Social Security benefits early, to remain in the workforce (or work additional hours). At the same time, it could induce other workers, those between age 62 and full retirement age, to begin claiming Social Security benefits (because there is no longer a penalty for receiving benefits while working).

EARNINGS LIMIT FOR BENEFICIARIES UNDER THE FULL RETIREMENT AGE

Altering the earnings limit

In this policy: Federal

AARP does not support proposals to liberalize the Social Security earnings limit for working beneficiaries age 62 through full retirement age, unless the integrity of the Social Security trust funds is maintained and it can be shown that there would be no adverse impact on the financial well-being of retirees or their spouses over the short and long terms.