Retirement Research Center Warns Against Earnings Test

By Reid Oslin
Staff Writer

With its first anniversary upcoming, the Boston College Center for Retirement Research has achieved an even more significant milestone: the release of its first commissioned study, which warns that older retirees face the risk of increased poverty if the Social Security "earnings test" is repealed.

"What To Do About the Social Security Earnings Test?" was written by Massachusetts Institute of Technology economist Jonathan Gruber and Peter Orszag, president of Sebago Associates, Inc. an economic consulting group.

Gruber and Orszag's report exemplifies the timely, relevant work on which the center hopes to build its reputation, said Drucker Professor in Management Sciences Alicia H. Munnell, the center's director.

"One of the major goals in establishing the center was to make academic research material available to policy makers," Munnell said. "This is a key vehicle in accomplishing that goal. The earnings test is an especially hot topic right now, since it currently is in consideration on Capitol Hill."

The center, established last year through a five-year, $5.25 million grant from the Social Security Administration, promotes research on retirement issues, communicates new findings to policy makers and the public, trains experts in the field of retirement administration, and broadens access to retirement data sources. It is one of only two such university-based centers in the country.

Under the current earnings test, workers aged 62-69 have their Social Security benefits partially reduced if their earnings exceed certain levels. To compensate for this reduction, they receive higher benefits in later years that eventually offset the impact of the early adjustment for the average person.

In "What to Do About the Social Security Earnings Test?" Gruber and Orszag say that changes in the earnings test would lead to an increase in the number of people claiming benefits at age 62, and those retirees and their spouses would receive lower benefits for life.

"The Social Security retirement earnings test is one of the least popular - and least understood - aspects of the Social Security system," according to the report.

"The earnings test is not a tax, as many people think," said Gruber, "but really a kind of 'forced savings.' If we were to get rid of it a lot of folks might undersave and you will have more people at the poverty level in the later years of their lives."

Gruber said that the earnings test is in effect for those people who claim benefits at 62 - including those who have not stopped working altogether - not just those who decide to retire.

"The issue is that right now there are a lot of people who are not claiming Social Security benefits because of the earnings test," Gruber said. "It helps protect them from taking benefits too early."

Copies of the report have been distributed to congressional policy-makers, professionals in the Social Security administration and service fields, concerned community groups, and academic researchers.

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