Does Eliminating the Earnings Test Increase the Incidence of Low Income among Older Women?

Published: 2015


Reductions in the implicit taxation of Social Security benefits from reducing or eliminating the Retirement Earnings Test (RET) are an appealing – and in many cases successful – means of encouraging labor supply of older individuals receiving benefits. The downside, however, is that the same policy reforms can encourage earlier claiming of Social Security benefits, which permanently lowers benefits paid in the future. Depending on the magnitude of the effects on earnings and how households or individuals adjust their consumption and savings decisions, the net effect can be lower incomes at much older ages well beyond when people have retired. We explore the consequences of the 2000 reforms eliminating the RET from the Full Retirement Age to age 69 for the longer-run evolution of income, focusing in particular on the incidence of low income among older women, who are more likely to have become dependent mainly on income from their Social Security benefits. We find that the elimination of the RET increased the likelihood of having low incomes among women in their mid-70s and older – ages at which the lower benefits from claiming earlier outweigh possibly higher income in the period when women or their husbands increased their labor supply.

Key Findings

    • The elimination of the retirement earnings test (RET) beyond the Full Retirement Age (FRA), in 2000, was intended to boost employment of those in this age range. But the elimination of the RET makes those who are working more likely to claim Social Security benefits at earlier ages, reducing benefits in the longer-run. This latter effect could lead to lower family income (including benefits) at older ages – perhaps in particular for older women who are likely to outlive their spouses.
    • We confirm past findings that the elimination of the RET led to earlier claiming of benefits for women, and hence lower benefits.
    • We find evidence that the elimination of the RET is associated with higher incomes and hence of lower incidence of low family incomes initially – when women are around age 70 – but higher incidence of low income as women reach their mid-70s and beyond.
    • These findings raise cautionary flags about proposals to reduce or eliminate the RET between ages 62 and the FRA.


Figinski, Theodore, and David Neumark. 2015. "Does Eliminating the Earnings Test Increase the Incidence of Low Income among Older Women?" Ann Arbor, MI. University of Michigan Retirement Research Center (MRRC) Working Paper, WP 2015-325.