If you’re receiving Social Security retirement benefits and also working, your monthly payments might be reduced, depending on certain factors.
However, this situation could be altered by a proposal known as the Labor Freedom Act for Elderly Persons. This bicameral bill, introduced by Sen. Rick Scott (R-Fla.) and Rep. Greg Murphy (R-N.C.), aims to remove what’s called the retirement income test. This test currently lowers Social Security benefits for those who begin collecting retirement benefits early while still working.
The retirement income test impacts those who filed for Social Security prior to reaching their full retirement age. For most, that age is generally between 66 and 67, depending on when they were born, and at that age, beneficiaries qualify for 100% of their earned retirement benefits.
In 2026, those who haven’t hit full retirement age can earn up to $24,480 annually before the retirement income test is triggered. If your earnings exceed this limit, the Social Security Administration will deduct $1 from your benefits for every $2 you earn over that amount.
For those reaching full retirement age that year, the income threshold rises to $65,160. Earnings above this figure will result in a deduction of $1 for every $3 earned in the month leading up to their birthday. Once someone hits full retirement age, their benefits are no longer reduced based on earnings.
The Social Security Administration mentions that for those significantly impacted by this income test, their benefits will be recalibrated once they reach full retirement age, reflecting any months when their benefits were lowered or withheld.
Scott stated, “This bill would remove the unfair retirement benefits reviews, allowing seniors who wish to remain in the workforce to do so without facing penalties or losing their hard-earned benefits.” He made these comments during a Senate Committee on Aging hearing held on March 25.
It’s still uncertain if the Republican-backed initiative will gain momentum in Congress.
Scott introduced the bill on March 24 and sent it to the Senate Finance Committee, while Murphy brought forward a similar measure in the House on April 16, which was also sent to the Ways and Means Committee.
Retirement allowance survey could “lose motivation to work”
During his testimony, Scott noted that the proposal to remove the retirement benefit review is especially relevant as workers aged 55 and over are the fastest-growing segment of the workforce.
Johnny C. Taylor Jr., the president and CEO of the Human Resources Association, also testified at the Senate Committee on Aging hearing, stating that the Society for Human Resource Management (SHRM) is “firmly advocating” for a reassessment of the retirement benefit test regulations.
He remarked, “For high earners, this isn’t typically an issue. But for those in the lower middle-income range, it becomes a disincentive. Losing income can mean the difference between affording medication or groceries.”
For retirees, claiming benefits early can have consequences. For example, if someone decides to start receiving benefits at age 62—the earliest age to do so—they might see a reduction of up to 30% in what they receive. This percentage is determined by the Social Security Administration.
Waiting until reaching full retirement age can allow recipients to claim the entirety of their entitled benefits. Moreover, delaying from full retirement age to age 70 can increase benefits by 8% for each year they wait.
What experts say lawmakers should consider
Rachel Gressler, a senior fellow at the Plymouth Free Enterprise Institute, described the retirement benefit test during her testimony as a “relic of the Great Depression” aimed at pushing older individuals out of the job market to make way for younger employees.
She added that the retirement benefit test is “little known and often misunderstood.”
Gressler noted, “The benefits lost during this period are eventually reinstated to the recipient’s monthly check after they reach full retirement age, but many aren’t aware of this. They see the test as a type of tax, which discourages them from working or earning more.”
Additionally, she indicated that those with shorter life expectancies may not recover all of their lost benefits.
Gressler pointed out that the process of administering retirement benefit checks costs the Social Security Administration about $70 million annually and may result in unjust payments, compelling beneficiaries to return overpaid amounts.
She referenced a law signed in 2000 by President Bill Clinton that exempted workers over retirement age from this test.
Dan Adcock, who leads government relations and policy for the National Committee to Preserve Social Security and Medicare, expressed in a hearing that many seniors left out by the 2000 provision felt neglected.
“From what I’ve observed in city halls alongside seniors, there’s widespread support for abolishing this retirement earnings test,” Adcock remarked.
However, he cautioned that lawmakers should weigh the effects on seniors and the Social Security trust fund’s viability, as it’s predicted to be depleted in about ten years.
He added that while eliminating the retirement income test might cut administrative costs in the long run, it could initially strain the program’s funding, given that it would require higher benefit distributions with trust fund reserves also at risk.
How to plan for a revenue test
For the time being, those receiving Social Security who have not yet reached full retirement age should contemplate how the retirement income test could impact their earnings.
Mark Stancato, a certified financial planner and the founder of VIP Wealth Advisors in Decatur, Georgia, explained that clients often react to potential benefit reductions by thinking about quitting their jobs or avoiding new opportunities.
“Many don’t realize they might still qualify for reduced benefits even now, which aren’t permanently docked,” Stancato stated. “It’s more about navigating personal goals.”
For those aiming to maintain their jobs, it’s also essential to consider the optimal timing for claiming Social Security benefits based on their unique situations. If you choose to file a claim, don’t overlook how your job income might influence your overall financial picture. It’s also worth noting that Social Security benefits are subject to taxation. To assess how the retirement income test could affect you, the Social Security Administration offers a calculator on their website.
