Change in Social Security Earnings
Question: I am 68 and, since going on Social Security, have continued to work part time but have kept my earnings under the figure that would wipe out my benefits altogether. I have heard that this year the amount you can earn without cutting into your Social Security benefits has gone up, but I have been unable to confirm this. Also, how long is this stupid ceiling on earnings going to continue, anyway? I keep hearing that they’re going to do away with it, but nothing seems to happen.--T.G.
Answer: That “stupid ceiling” has been around since the Social Security program was signed into law in 1935, and almost every year since then there have been attempts to remove it. The only encouraging note is that the efforts to abolish it seem to be getting more effective every year--even among Social Security commissioners. The basic reason for it in the first place was because the country was in the midst of the Great Depression and, in addition to providing a subsistence-level income for retirees, Social Security had as its secondary aim getting people out of the work force to make room for younger workers.
A lot of the rationale for that, of course, has gone overboard, and so the pressure to remove the ceiling altogether is heating up, especially since beneficiaries continuing to work would offset a substantial percentage of their benefits by continuing to contribute into Social Security. At age 70, of course, it’s a moot point because Social Security beneficiaries can earn any amount without reducing their benefits.
What you heard, however, is correct, according to Joe Giglio, Social Security’s public affairs spokesman in Los Angeles. Until the end of last year, for every $2 you had in earnings over your maximum you lost $1 in Social Security benefits. In the current year--and into the foreseeable future--you will lose $1 in benefits for every $3 you have in earnings over your maximum, which is a pretty good liberalization.
You have to keep a couple of points in mind here, however, Giglio warns: The one-for-three rule is applicable only to those beneficiaries 65 or over. If you’re under 65 but on Social Security, the old one-for-two rule still applies. And, just as it has every year, the maximum monthly benefit has also gone up in 1990--to $975 a month (from $899 in ‘89)--and the amount you can earn before the ceiling kicks in has risen to $9,360 (from $8,800 the year before). And for those on Social Security but under the age of 65, the ceiling now kicks in at $6,840 a year--up from $6,480 the year before.
Bear in mind, Giglio again warns, that that maximum benefit of $975 a month applies only if you are at least 65 this year and have contributed the maximum amount into Social Security during most of your working life. That’s important because, back in the so-called “good old days” your earnings could be relatively modest and you would still reach retirement age having paid the maximum amount all your working life. For many, many years, the maximum earnings subject to Social Security stayed stubbornly in the $3,000-to-$5,000-a-year range. But today, Social Security is levied on earned income up to $51,300 a year, and so it’s becoming increasingly difficult to have paid the maximum amount into the program all of your life.
What the new one-for-three yardstick means this year for people receiving the maximum of $975 a month, Giglio says, is that it is possible for them to earn as much as $44,460 in 1990 before they lose all of their Social Security benefits. How so? According to Giglio, you begin by taking this figure of $44,460 and subtracting from it the $9,360 that you are allowed to earn without penalty, which leaves you with $35,100. Since you would lose $1 of this for every $3 you earn, you divide $ 35,100 by three. The resulting figure is $11,700, which is the total amount you would lose in benefits. (It is also the exact amount you would receive in one year under maximum benefits--$975 a month multiplied by 12 months is $11,700.) In other words, you’ve lost all your Social Security benefits for the year by being so industrious but, look, you had to earn a pretty good income ($44,460) to do it. If your earnings were under that, of course, you’d still receive partial Social Security benefits.
