Repeal the Social Security Earnings Penalty
Where did all these people go? Many of them retired for Social Security benefit collection purposes. A December 7 Wall Street Journal article noted that fiscal 2009’s 21% increase in the number of Social Security retirement applications was well above the 15% uptick the Social Security Administration expected. Many who began collecting benefits clearly did so earlier than they would have liked because they lost their jobs and their immediate employment prospects were so grim. Though they did so knowing that they would collect less in monthly benefits, I suspect that many of them had no idea that finding even part-time work might jeopardize part or all of those reduced benefits. But that is indeed the case, thanks to the remnants of an anachronism known as the Social Security earnings penalty.
Though it was much more onerous before it was partially repealed in the late 1990s, the earnings penalty is still a brutal disincentive to new or continued full-time employment. Straight from the Social Security Administration itself, here is how it works against work (FRA, or full retirement age, is between 66 and 67 for most non-retired readers):
Those affected who are unaware of the penalty and attempt full-time, year-round work experience an effective tax rate of 50% on annual earnings above the small amounts noted above. They also still pay Social Security and Medicare taxes of 7.65% (15.3% if self-employed) on their earnings, as well as any federal, state, or local income taxes. Subtract commuting and other related costs, and these people quickly figure out that they’re working virtually for free. So they stop working when they hit the annual limit or shortly thereafter and try to start over the next year. That’s obviously not a way to keep one’s skills or work ethic sharp.
Repealing the earnings penalty effective January 1, 2010, would encourage early Social Security retirees who want or need to work to find year-round employment that will pay well. It will give employers who are dying to find something they can count on in this uncertain economy a pool of as many as a few hundred thousand proven, productive, and talented people who will help businesses and the economy as a whole return to legitimate, sustainable growth. Growing businesses should in relatively short order be able to hire others to do work that needs to be done. It’s even possible that total tax collections at all levels of government might actually increase as a result of repeal.
Passing repeal should be a no-brainer. I can’t think of a single credible reason why anyone would oppose this. The only conceivable objection is that it might shut some younger people out of the workforce.
But that objection disappears when you consider the supposed current mindset of Congress and the administration. Despite the evidence presented earlier, they really seem to believe that happier or at least less unhappy days are here again in the employment market. If so, they need to put up or shut up. Getting skilled, experienced people back into the economy will get it moving on a more permanent basis. After that happens, expanded opportunities for the younger and less skilled will come soon enough. Obama, Pelosi, and Reid simply need to set aside enough time from their statist health care machinations and their carbon-based obsessions to kick this relic of the FDR Depression era to the curb once and for all.
Close, but no cigar. Repeal Social Security, period. The Libertarian party has had a plan for years to sell off federal assits held unconstituionally (like most of the southwestern states)to repay with interests what people have put into this ponzi scheme. It was a bad idea when it was created, and it remains a bad idea.
Okay; Repeal this law, but it won’t make any difference in the attitude of employers hiring older workers. When you get into your late fifties, employers mostly ignore you, no matter what your skill level. And if you’re a white man! Lotsa luck, pal. No laws protect you.
I may be showing my age, but I remember all the way back to 2004, when we were told that 4.5% unemployment meant that GWB was a miserable failure and the worst president ever. Such was the conventional wisdom at the time. Ah, nostalgia…
The earnings penalty for early retirement is real. However, if you check the SS site you’ll see that through a complex formula, when you reach FRA the SS earnings you had lost by working above the limit during early retirement will be rolled back into your FRA check when you reach 66 (or 67). See http://www.socialsecurity.gov/retire2/whileworking3.htm
Actually, that’s a Band-Aid on a Band-Aid. We need to wean ourselves off of Social Security, and we need to engender a culture of personal responsibility. Character, you know? So, retirees who CAN work could get together and publicly demonstrate that they are willing to give up an entitlement (or at least part of an entitlement) and contribute to the welfare of the country because they CAN, not because they have to. This financial cliff America is approaching is the time for the leadership generation (50-70 years old?) to step up and show voluntary selfdenial as a contribution to the culture. Otherwise, the younger generation will have no motivation to NOT vote for Socialism.
ps. I’m 52 and self-employed. My plans for my “twilight years” include a 401.k, but more importantly making sure I have skills that will be marketable when I’m 70. My wife and I have intentionally accepted a more minimal lifestyle that will be sustainable with a much lower income. Social Security? I for one will never apply.
From what I’ve seen, the current round of layoffs has been skewed towards removing 40-50 year old employees in their peak earning years. Those hit the hardest from what I’ve seen are families forced to deal with the loss of one or both incomes.
Unfortunately, employers have no legal obligation to families and there exist real disincentives to hiring employees with families, i.e. reliability (sick kids, dropping kids off at school etc.), healthcare costs and such.
Is this the right time to be creating employment incentives for retirees?
1. What do you mean by “most of the southwestern states?”
My idea is make all SS benefits fully taxable, but impose no penalty on the benefits themselves. This will be less of a shock to the system, while still reducing our net spending on SS. Then we can focus on eliminating it.
Don’t forget the penalty that occurs when you are required to withdraw money from your ira or 401k plan at 70.5 years. it is treated the same as w-2 earnings and you must pay payroll taxes on the withdrawal and taxed again on the amount you withdrawal that exceeds $37,680. you cannot beat the system. you either withdraw or the goverment penalizes you. those are old untaxed wages and the gov wants it’s money.
The reason this won’t work is because the vast majority of Americans have NO idea how SS works. They also don’t realize there are at least two Supreme Court decisions stating that there is no contract between an SS account holder and the government. Therefore, with one vote (a majority vote in one house of Congress) and a Presidential signature, everything millions of Americans have counted on for decades of their working life changes in that instant.
Good luck!
Furthermore, it changes automatically upon bankruptcy of the Trust Fund. Farce though it may be, there is a pile of Treasury Bills that the SSA holds that the Treasury must honor. However, once these bills are all redeemed, SS defaults and all benefits are pro-rated to a level that corresponds to the revenue generated by payroll taxes, because the SSA has no claim on the General Fund except the claim represented by those T-Bills. When the fund goes bankrupt, they will have no choice but to reduce benefits proportionally, or in a manner that Congress shall appoint by law, but under no circumstance can Social Security carry a negative balance in the Trust Fund, because the SSA has no power to borrow or print money.
Wouldn’t removing the earnings penalty for early retirement just encourage people to retire early and keep working?
Wouldn’t it be smarter to simply raise the eligibility age?
There is a coming swell of Boomer retirees like me; we would be beter off to encourage them to keep working longer, paying into the system, instead of withdrawing.
There isn’t really any reason why people absolutely must stop working at 65; when SS was set up in 1933, 65 year olds were really unfit for work; today, not so much.
myth buster,
This is what I meant by “most of the southwestern states.”
As per the link below, the Federal government directly owns almost 30% of the land in the United States. I doubt this is what the founders/framers had in mind.
http://strangemaps.wordpress.com/2008/06/17/291-federal-lands-in-the-us/
If you are a non union wage earner in your mid to late fifties then good luck on getting a job after you have been laid off. Over 37 years experience as Electronics Technician and Electrician in Industry Commercial and Industrial but there is nothing for me Vietnam Era Veteran with Good Conduct and Honorable Discharge after serving and will possibly not see a dime of what I have put into Social Security. I am disgusted with this current administration and those that want more from those that have already given but are now trying to just get by.
Raising the retirement age is a no brainer. We shouldn’t permit anyone under 70 to claim retirement benefits.
#4, I’m aware of the recovery formula, but I don’t think its existence has any impact on decisions as to whether or not to work while receiving benefits between ages 62 and FRA minus one year, and only a minimal impact on the final year before FRA.
myth buster,
“We” don’t have the right to “permit” or deny permission to someone as to when they want to retire. It really is that simple. Social Securty was designed to buy votes, it is a scam like everything else that came out of the “New Deal,” and needs to be dismantled.
Eliminating SS is no solution. It’s an OPTION when you want to retire. You can do it at 62 or at 70. Just because some workaholics don’t want to stop, it doesn’t means everyone else should. The people who can retire without SS is a minority, maybe a rich minority; but again, wage earners depend on SS to just survive in their “golden” years. Older people deserve respect, this country has a lot to learn.
16&17. You can retire before Social Security reaching retirement age; you just can’t claim Social Security benefits. Used to be people relied on their savings or else their children to provide for them in old age. That’s what we need to get back to.
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