The Covid-19 crisis has raised awareness regarding many social ills, including the lack of emergency funds, the fragility of the labor force, especially for older workers, and inequality in general. These all need to be addressed in time, but there is another issue that should be a priority for immediate consideration. I am referring to the Social Security “earnings test” that penalizes workers who are collecting SS benefits prior to achieving full retirement age. As an FYI, “full” retirement age is different for workers based on the year of your birth. For instance, anyone born 1959 (my year of birth) I am considered at full retirement age when I am 66 years old and 10 months.
Why is this important? It has taken on greater urgency because of the significant job losses experienced during this crisis. Many older Americans will have a difficult time reentering the labor market and may in fact be forced to take an early SS benefit to supplement any savings that have been accumulated, which we know are scant for a significant percentage of the population. Those taking early SS benefits will be required to forfeit $1 for every $2 earned above $18,240. The penalty becomes less onerous once you reach the year in which you achieve full retirement age. For someone born in 1959, they would have 46 months of the $2 penalty, and 1-year of the $1 for every $3 earned above an income threshold of $48,600.
Even without this crisis, it seems unreasonable that American workers can’t supplement their “retirement” incomes without incurring a penalty. I’m sure that critics of this proposal will cite the Federal government’s widening deficits and fears of a collapsing SS system that is forecast to go bust at some point in the future. Those concerns are unfounded as the US government can always meet their obligations thanks to possessing a fiat currency. When many Americans find themselves unemployed, and economic activity has taken it on the chin, we should be looking for ways to further stimulate demand for goods and services. Allowing American workers collecting SS benefits prior to achieving full retirement age would now have additional spending power.