The earnings test has been a Social Security feature throughout the program’s history. Originally, benefits stopped if a recipient had any earnings, since benefits were meant to replace earnings due to complete retirement. The unpopularity of the law has resulted in liberalizations. Currently, the test no longer applies to many beneficiaries once they reach a certain age, and the amounts beneficiaries can earn while receiving benefits increases regularly with the cost-of-living index.
Early Retirement Earnings Limits
The earliest age at which workers can retire is 62. Until the year in which he reaches full retirement age – currently age 66 for most retirees -- gross earnings above a threshold could affect benefits. The limit, which varies annually, is $14,160 in 2010. Half of earnings above this limit offset Social Security benefits due for the year. For example, if the retiree earns $20,000 during the year, half of the $5,840 excess -- $2,920 -- offsets benefits. If he is due $1,200 monthly, Social Security withholds the first $2,920 due for the year and pays the rest.
Full Retirement Limits
Full retirement age was age 65 until 2000, when it began to rise two months annually until reaching age 66 for workers born 1943 through 1954. A separate earnings limit applies -- $37,680 in 2010 -- during the year in which retirees reach their FRA. For example, a worker age 66 in May can earn $37,680 during the months of January through April and receive all benefits. Earnings from May on do not count. If the retiree grosses $5,000 monthly, his total earnings from January through April will be $20,000. Since he is under $37,680, he will not have benefits reduced even if he continues working and earns $60,000 total for the year. If he earned $47,680 during January through April, SSA would deduct one-third of the excess -- $3,333 -- from benefits due those months.
Disability Trial Work Period
Disability insurance program earnings limits measure whether workers are able to work despite their impairment. Social Security provides a trial work period of nine months so disability beneficiaries can attempt working despite their impairment. Earnings must exceed $720 monthly to count as a TWP month. Regardless of amount, the TWP earnings do not affect benefits during the nine months, which can be years apart as long as they occur within a 60-month span. After successfully completing a TWP, continued work at a higher level – substantial gainful activity – could affect disability benefits. Higher earnings limits apply to blind recipients.
Substantial Gainful Activity
If a disability insurance beneficiary completes nine months of work at the TWP level, eligibility continues indefinitely unless the recipient works at a substantial gainful activity level. Work is substantial in 2010 if it exceeds $1,000 monthly. Work after the TWP at the substantial level stops benefits after a two-month grace period. However, for 36 months starting after the end of the TWP, the recipient can receive a disability benefit for any month she does not work at the SGA level. At the end of this three-year extended period of eligibility, benefits terminate if the recipient attains one month of SGA work. Benefits continue indefinitely if he has ceased SGA before the 36 months end.
Work and Benefit Increases
Recipients who continue working after retirement may receive increases in their benefits. Social Security uses the highest years of earning to calculate benefits. If the post-retirement year earnings are higher than a year currently used to figure benefits, the Social Security Administration substitutes the higher year and recalculates benefits. The SSA annually processes around 245 million employer reports of earnings. The SSA compares the earnings posted for beneficiaries to previous earnings used to figure benefits and makes any corrections. If earnings in 2010 would result in a benefit increase, the raise would increase benefits beginning in January 2011.
- American Academy of Actuaries: Means Testing of Social Security
- Social Security: Social Security Update 2010
- Social Security: SSDI Employment Supports
- Social Security: Examples -- When You Work and Get Social Security
- Social Security Office of Retirement and Disability Policy: SSA Master Earnings File
Jane Amar received a Bachelor of Arts in Spanish language and literature from the University of California in Riverside in 1970. After more than 37 years in government service in management and technical positions, she retired and began her writing career. Since 2007 she has written online content in English and Spanish for profit and nonprofit services and individual entrepreneurs.