The Social Security Earnings Test and Retirement

We explore evidence that the Old Age and Survivors Insurance (OASI) Retirement Earnings Test (RET) causes a substantial fraction of OASI claimants not to work. The RET reduces OASI claimants’ current OASI benefits as a proportion of earnings, once a claimant earns in excess of an exempt amount, implying that the losses in current benefits due to the RET grow as earnings increase above the exempt amount. We document that the probability of not working also increases much faster above the exempt amount, commensurate with the increasing “bite” of the RET. This suggests that work decisions are sensitive to the RET.