Older workers may earn more --
and pay more taxes
Thanks to the Senior Citizen's Freedom to Work
Act of 2000, older workers now can earn more money without worrying
about losing Social Security benefits.
Before the law was changed, senior employees
who earned over a certain amount saw their federal retirement payouts
reduced. That approach came under increasing fire as more and more
seniors enjoy longer, active Golden Years. Many want -- or need
-- to work beyond traditional retirement age.
But not all retirees should start updating their
While many will profit from bringing home a
bigger paycheck to supplement retirement benefits, some seniors
may find the tax ramifications not so appealing. Earning extra money
might mean you will owe Uncle Sam for previously untaxed retirement
When Social Security was created in 1935, the earnings test was
used to help move older workers out of the labor force so that younger
ones, many with new or growing families, could fill scarce jobs.
Before the passage of the senior earnings act,
workers between 65 and 69 could earn no more than $17,000 or they
would lose some Social Security payments. At that pay level, federal
retirement benefits were reduced by $1 for every $3 that was earned
over the cap. The earnings limit was increased yearly. When workers
reached 70, the earnings cap disappeared.
How the Social Security earnings limit
|Ida is 66 years old
and receives $417 a month from Social Security (about $5,000
annually). Ida takes a part-time job as a cashier, earning $18,500.
This is how the earnings test affected her:
Ida's earnings in excess of the limit