If you're getting Social Security benefits, you'd better know how to pass the "retirement test."
Basically, the retirement test (sometimes called the earnings test) is the amount of money you can continue to earn in a part-time job and still be eligible for Social Security benefits.
This year, if you retire at 65, you're allowed to earn$4,000 at work and still be eligible to receive your full Social Security pension benefits. The amount will be increased to $6,000 a year by 1982, moving up in $500 increments each year.
People who retire early at age 62 can earn $3,240 a year. This amount will be increased each year, but not as much as the raise given to people who retire at 65.
The idea of liminting the amount of income the elderly can earn while receiving Social Security is embroiled in controversy. In a detailed, 57-page report called "The Social Security Retirement Test - Right or Wrong," published by the American Enterprise Insitutie, economist Marshall R. Colberg says bluntly: "The Social Security earnings (retirement) best should be eliminated at age 65."
Adding insult to injury, says Colberg, is the change in the earnings test Congress passed late 1977. The change eliminated the right to test earnings on a monthly basis.
The monthly test allowed a retiree who made considerable money on a seasonal job lasting three months out of the year to continue making up to one-twelfth the annual earnings limit in subsequent months and still get Social Security chekcs for those months. Only during the months in which the retiree earned more than one-twelfth the annual limit were Social Security checks withheld.
This was a great advantage - being able to choose a monthly or annual limit - for part-time edlerly workers. "Until the (earnings) test is eliminated," says Colberg, "the socially useful monthly (limit) test should be retired."
Members of Congress are considering restoring the monthly earnings choice. If you'd like to see this helpful employment feature back on the books, write your senators and representative.
Congress, perhaps realizing elderly workers were being given a bad dose of legislative medicine, amended the law to allow pople who reach age 70 to be able to earn all they want on a job and still get Social Security checks. The law previously allowed unlimited earnings to commence at age 72. But, the new age limit won't go in effect until 1982.
When an older person works parttime after age 65 and continues receiving Social Security checks, there's a sort of double taxation. Earnings are limited to $4,000 a year and the part-time worker still has to have Social Security taxes withheld from paychecks. And, says economist Colberg, there are no deductions allowed in calculting "net" earnings such as are allowed for income tax purposes.
Strangely, Congress has written the law so that only "earned" income is counted in the retirement test. Only income you earn at a job that is covered by Social Security is counted. You can have all sorts of other income and it's not counted. Pension money (from your employer or union) is not counted; nor is income from rental properties, stocks and bonds, savings and "payments in kind for domestic or agricultural labor."
So a rich person who gets considerable income from investments gets a much better break than the less-fortunate retiree who has no other income and must work to make ends meet. The law is most unfair, says Colberg, and is urgently in need of revamping.
Q: In a recent column you carried a letter from a reader who complained she lost her pension becuase she moved to another job before she had vested (ownership) rights to her pension. In plans in which an employer sets up an IRA (Individual Retirement Account) for employes, you get immediate ownership of your pension money. The employer can contribute all or you contribute on a payroll-deduction plan. Each time a deduction is made, you receive full federal tax benefits.
A: A payroll-deduction plan is an excellent way for an individual way for an individual to build up an IRA pension fund. Taxes are not withheld on the money that goes into the plan. However, IRA plans are open only to workers not covered by any other pension plan.
Q: You said insitutions will pay as much as eight percent on eight-year savings certificates for IRA do-it-yourself pension plans. But isn't there annually a $1,000 minimum-deposit requirement? What if you can't put in $1,000 to open an account?
A: Savings institution now are allowed to waive the $1,000 minimum-deposit requirement for the 8 percent plus IRA savings certificates. "Some might continue to requre a minimum $1,000 deposit, but many others now are asking for minimums of $100, even $10. Shop around, you should be able to find a lower minimum for IRA savings certificates.
And remember, you can withdraw your IRA money when your reach age 5 1/2 without incurring any early-withdrawal penalty on your savings certificate, even if you just deposited the money the year before.