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More Money Now, Less Later

By Jane Byrant Quinn
Washington Post Staff Writer
Thursday, March 30, 2000

What will older workers gain, now that Congress has repealed the Social Security earnings limit for people 65 and up? The surprising answer:

On average, you'll gain nothing at all.

You might have a higher income now, while you're still employed. But in that case, your future, post-retirement benefits will be smaller than under current law. In other words, it's a wash. More benefits now, fewer benefits later.

Most older workers don't realize that that's the way the system works. Right now, you're losing $1 in Social Security benefits for every $3 you earn over $17,000, if you're 65 to 69 (there's no earnings limit for people 70 and up).

If feels as if those dollars you lose are gone forever. But when you retire, you get that money back, in the form of a delayed-retirement credit.

A small interest payment is included in your delayed-retirement credit. By 2008, that payment will equal the sum you could have earned by investing that money in Treasury bonds.

So the earnings limit doesn't take any money away from you. It just changes the year when you receive it.

Under the new bill, you can receive your full Social Security benefit at your normal retirement age (now 65), no matter what you earn. That means you'll get your money today, rather than later.

President Clinton says that he will sign the bill, once the House and Senate settle some technical questions.

The new rules are retroactive to Jan. 1. Working seniors 65 to 69, who have had their benefits reduced this year, will get that money back. The law also covers widow's and spousal benefits, for workers in this age bracket.

Around 800,000 people will receive checks automatically, according to Social Security estimates. If the president signs the bill by mid-April, you should have your money in May. That gives you plenty of time to feel grateful to the political party of your choice.

On average, these older workers earn around $41,000. They'll pick up an average of $8,000 this year, in current Social Security benefits.

Another 100,000 people may not even have signed up for benefits, on the assumption that they were earning too much to qualify. They could now ask for payments, too.

Social Security figures that the new arrangement will cause more older people to stay in the labor force, but perhaps not as many you think.

Around 5 percent of older beneficiaries earn just under the current earnings limit, according to a Social Security report.

Presumably, many of them are deliberately limiting their work hours, to keep their Social Security benefit intact. Under the new law, they may decide to work more hours and earn more pay.

On the other hand, some older workers may decide to work less, because of the extra money they'll be getting from Social Security.

You might still be able to defer collecting Social Security benefits if you want. The House and Senate bills differ on this point.

If deferral is allowed, you'll have the best of both worlds. You could choose full benefits at 65 (or your normal retirement age, if it's later), regardless of how much you earn. Or you could defer your benefits, and get the delayed-retirement credit when you finally do retire.

You might want to defer if the tax on your benefits would be lower in the future than it is today.

Please note that nothing has changed for workers 62 to 64. For you, the current earnings limit stays. You lose $1 in benefits for every $2 you earn over $10,080.

What difference does all this make to the state of the Social Security trust fund? Almost none, according to the Social Security report.

More money would be paid out in the early years. But less would be paid in later years, because so few people would be collecting a delayed-retirement credit. The trust fund would still be exhausted in 2034, based on current assumptions.

So it makes no difference to the fund, if Social Security is changed from a retirement plan to a birthday present. But it might make a political difference.

Social Security still needs some adjustments, to ensure that all future benefits will be paid. "Ending the earnings test should be the candy, in a comprehensive reform package that includes some lemons, too," says Dallas Salisbury, head of the Employee Benefit Research Institute in Washington, D.C.

Now, the lemons will have to stand on their own.

Jane Bryant Quinn welcomes letters on money issues and problems but cannot offer individual financial advice.

© 2000 The Washington Post Company




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