What is the retirement test? What are arguments for and against removing or relaxing the retirement test?

Question

What will be an ideal response?

Answer 1

The retirement test is a penalty imposed on recipients of Social Security who wish to supplement their benefits by working. If a recipient earns a certain amount of money, a penalty is imposed on the benefits paid to him or her. The penalty changes as the beneficiary reaches full retirement age. A reason for removing the retirement age is directly related to how the program is conceptualized. First, if the program is conceived as social insurance rather than as a means-tested benefit, recipients should receive benefits as a matter of right, much as the recipients of private annuities do. The retirement test gives the lie to the idea of Social Security as an insurance program. Because retirees are to some extent punished if they work, attempting to move out of the labor force gradually, they may stop working and cease paying Social Security taxes, whereas if they continued to work, they could pay some of their own benefits through taxes. The higher tax cost for the program borne by the working-age population becomes especially troubling as the population ages and there are fewer active workers to pay for the benefits of retirees. There are also humane reasons for eliminating or modifying the retirement test. As the life expectancy of American citizens has increased, many individuals are capable of continuing to work after the usual retirement age. In a society that frequently defines an individual’s worth on the basis of his or her work, the inability to work without paying a penalty for it may impose severe psychological as well as economic burdens on the retiree. More flexible or unlimited earnings would allow Social Security recipients to participate in the labor market, although perhaps not to the extent they did previously, and would permit phasing out employment rather than a sudden and often traumatic retirement. On the other side of the argument, allowing retirees to continue working could have a significant effect on the job prospects of other potential employees, especially those just entering the labor market: every retiree who continued to work would mean one less job for a young person. Youth unemployment (especially for minority groups) is a significant problem, and the needs of the elderly must be balanced against the needs of younger people. Additionally, allowing retirees to continue working while still receiving benefits would amount to a direct transfer of income from the young to the old, based simply on age rather than on participation in the labor market. The strong economy in the late 1990s created a continuing need for the skills and abilities of workers who might otherwise have retired under the Social Security system, but as the economy slowed, it became apparent that opening opportunities for younger workers might be more beneficial.