9 Weird Facts About Social Security's Retirement Earnings Test

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On the face of it, the Social Security earnings test sounds like a straightforward factor to consider in the broader context of a given client’s benefits claiming decision.

As stated on SSA.gov, when an eligible person claims Social Security benefits before reaching their full retirement age and continues working and earning above a certain threshold, they are subject to the retirement earnings test.

Notably, the retirement earnings test reduces Social Security benefits during the time before the individual reaches their full retirement age, but it also increases benefits once they reach full retirement age. In other words, benefits withheld while one continues to work are not lost. Rather, they are added to the monthly benefit enjoyed after the full retirement age.

While this framework sounds straightforward enough, in practice, the earnings test causes a lot of confusion for advisors and clients alike, experts say. This is because there are a lot of subtle rules with respect to when and how the test is applied — and because there is a lot of false information on the internet.

For example, many Americans mistakenly believe that they can’t claim benefits before their full retirement age because they “make too much.” In reality, individuals can claim their benefits at 62 and continue to work through their full retirement age and beyond, and in some cases, that approach can make a lot of sense.

Ultimately, understanding the earnings test rules will allow an advisor to help the client better tailor their claiming strategy, even for those who, at first glance, may seem to have income levels that would make claiming early appear to be suboptimal.

See the slideshow for a list of nine facts about the Social Security retirement earnings test that advisors and clients might find a bit weird, drawn from SSA.gov and a new FAQ published by the Congressional Budget Office. Some may be more well known than others, but all of them can help the advisor deliver maximum value to clients facing the difficult but incredibly important task of choosing when and how to claim Social Security benefits.

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