Senior Living



Social Security and You: The Social Security 'Retirement Test' Gets a Failing Grade

Tom Margenau on

There is a provision of Social Security law that is rather archaically called the "annual earnings test." It is sometimes also called the "retirement test." (More about where those terms come from in a minute.) But I call it the Social Security earnings penalty. And I've never liked this law. Before I explain why, let me clarify what I am talking about.

The rules say that if you are a Social Security beneficiary who is under full retirement age and still working, $1 must be deducted from your Social Security checks for every $2 you earn over $18,240 annually. A more lenient penalty applies in the year you reach full retirement age. The earnings threshold is $48,600 with a 3-for-1 withholding scheme. In other words, $1 is withheld from your benefits for every $3 you make over $48,600. And once you reach your full retirement age, the penalties go away. Starting with that month, you could make $1 million a day and still be eligible for Social Security checks.

But in this column, I'm primarily addressing the law that applies to people under full retirement age. In a bit, I'll tell you why I don't like the law now. But first, I want to tell you why I hated it in all the years I worked for the Social Security Administration: It was a mess to administer. To illustrate, I'll use my own mother as an example.

Back in the 1970s, she was getting Social Security widows benefits, but she was working part time to supplement her rather meager benefits. She would start out the year reporting her anticipated earnings to her local Social Security office. They would adjust her benefits accordingly, applying the $1 deduction for every $2 earned. Inevitably, as the year went on, she'd work a little overtime or pick up a couple of extra hours of work. She would dutifully report her change in anticipated earnings to the Social Security people, and further adjustments would be made to her monthly widows checks. More often than not, she'd be charged with an overpayment and be asked to return some of her Social Security funds. Then maybe she'd be laid off for a time, and her earnings would go down; she'd file yet another report with the SSA, and there would be more adjustments to her benefits. Sometimes, the SSA owed her some extra money.

Eventually, once the year was over and she got her W-2 form, she would make a final report of her earnings to the Social Security office, leading to yet another benefit adjustment. And on top of that, they would ask for an estimate of her anticipated earnings for the new year; more adjustments would be made, and the whole vicious cycle would start over again.

My mom used to complain bitterly to me about this, saying, "Can't you do anything to help me?" I always had to tell her that there was (and still is) a law that says SSA employees cannot work on any cases involving their relatives. Still, when people griped to me about how they couldn't understand the constant tinkering with their Social Security benefit amount due to the earnings penalty, I used to tell them, "If I can't keep my own mother's records straight, how do you expect me to help you?!"

Actually, at the end of this column, I will share some advice I eventually gave my mom, and thousands of other people over the years, to help deal with the earnings penalty rules.

But first, I want to give a more philosophical reason as to why I don't like the earnings penalty: I don't understand why someone should be punished if he or she tries to work and earn a little money to supplement Social Security benefits.

Having voiced that concern, I should point out that I know why the law exists. It goes back to the very beginning of Social Security in the 1930s. Retirement benefits were intended to replace earnings a person loses when he or she retires. To put that another way, a person had to retire to get "retirement" benefits. And this provision of the law was a "test" of their retirement status. (Thus, the term "retirement test.")


Initially, the law said you had to be completely retired. But over the years, Congress eased up on the restrictive nature of the original law. They said people over full retirement age could work full time and get benefits. And they allowed folks under full retirement age to at least work part time and earn some money, but not much.

I also understand why Congress isn't exactly eager to change the law: the costs. The Social Security system would have to pay hundreds of millions of dollars in extra benefits each year if the earnings penalty was eliminated. And at a time when they are looking for ways to trim Social Security spending (as part of an eventual package of reforms to solve the system's long-range financing problems), passing a law that would greatly increase program outlays just isn't in the cards.

So, because the earnings penalty isn't going away anytime soon, let me share with you some tips for dealing with it. Of course, you could play by the rules and religiously report your earnings to the SSA -- and then get stuck in the vicious cycle of earnings variances and benefit adjustments that plagued my mother.

Or you could bend the rules a bit. You could tell the SSA that you plan to make less than whatever the earnings threshold happens to be. So, for example, for this year, you would say you expect to make less than $18,240, even if you think you will make more than that. What that means is that the SSA won't withhold any of your benefits. But you must remember that you will have to pay back some of that money once the year is over with. At the beginning of 2021, you will tell the SSA how much money you made in 2020, and they will calculate how much money you have to pay back.

If you don't like the idea of having to owe the government any money, you could go the other way around. For example, you could tell the SSA you plan to make $100,000 in 2020, even though you actually expect to make much less. In this scenario, the SSA won't send you any Social Security checks. Then in early 2021, you would tell the SSA how much money you actually made in 2020, and they will send you a check to cover the benefits you are due.

I know some of my former SSA colleagues will be absolutely aghast at these suggestions. They will say that I am coaching people to lie to the government. But c'mon, chill out! Both scenarios I presented require the claimant to eventually settle the books with the SSA. In the end, either with the constant adjustment through the normal procedures or with the one-time accounting using one of my methods, the people eventually get the proper Social Security benefits they are due.


If you have a Social Security question, Tom Margenau has the answer. Contact him at To find out more about Tom Margenau and to read past columns and see features from other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at




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