Key insights
- A bill to repeal the Social Security earnings test for early beneficiaries has been reintroduced. While it could simplify retirement decisions and potentially boost consumer spending by allowing retirees to work without penalty, its passage is uncertain. The impact on US equities is likely neutral to slightly positive, contingent on increased labor participation and consumer activity.
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Since 1940, a Social Security earnings test has reduced Social Security benefits for many early beneficiaries who work. That could be about to change.
Rep. Greg Murphy (R-NC) has reintroduced the Senior Citizens' Freedom to Work Act, which would eliminate the earnings test for those who haven't reached full retirement age. Sen. Rick Scott (R-FL) has introduced a companion bill in the Senate. The change could affect several million Americans who were in the labor force between the ages of 62 and 67.
Whether to claim Social Security early while still working is one of the most consequential retirement decisions Americans make. The earnings test, often misunderstood, is part of why. A repeal could simplify that calculation, but when the bill was last introduced in 2023, it died in committee. It's uncertain whether the reintroduced bill will become law.
Not everyone who collects Social Security early will have their benefits reduced. If you're under full retirement age in 2026 (between ages 66 and 67), $1 in benefits is withheld for every $2 of earnings above $24,480. The year you reach full retirement age, the threshold increases to $65,160. For every $3 above that amount, you'll have $1 in benefits withheld.
Retirees recover that money. Once you reach full retirement age, the SSA recalculates your benefits and pays back what was withheld.
"Most people do not realize this, and the test is perceived as an additional 50% tax," said Rachel Greszler, a senior research fellow at Advancing American Freedom, a conservative think tank, in a March 2026 congressional hearing.
With more Americans working past traditional retirement, eliminating the earnings test would apply to a growing population of older Americans still in the workforce. The participation rate for Americans ages 55 to 64 was 65.9%.
"The Retirement Earnings Test was passed during the Great Depression, specifically to push older Americans out of the workforce and free up more jobs for younger Americans," Scott said in a congressional hearing last month. "It’s not the 1930s anymore, and we shouldn’t expect our seniors to be punished today by outdated policies passed then."
Critics of the earnings test, like Greszler, also argue that retirees often don't recoup their reduced benefits from working.
"Some people do not live long enough to recover even close to what the retirement earnings test took away," Greszler said at the hearing.
The expected effect on Social Security's finances from eliminating the earnings test is minimal but positive. According to the Social Security Administration, starting in 2028, it would cut the long-range Social Security funding shortfall by just 1%.
Getting rid of the earnings test could affect when Americans claim Social Security.
According to a 2023 Congressional Research Service report, repealing the rule could encourage more people to collect Social Security early. Those who did so could see a lifetime cut in their benefits.
"With no recalculation for later benefits remaining after RET removal, these lifetime lower benefits would increase the likelihood of poverty incidence for certain groups, especially women and those aged 80-89," the report states.
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