Lifetime Planner IDEA: Update Social Security Retirement Earnings Test Thresholds

Scooterlam
Scooterlam SuperUser, Windows Beta Beta
Lifetime Planner IDEA:  Update AND Maintain Social Security Retirement Earnings Test Thresholds in LTP - Out of Date


The Social Security Administration (SSA) uses a Retirement Earnings Test to determine how much to reduce benefits when the beneficiary is also working.
Two reduction thresholds/schemes are defined by SSA, a "lower amount" applies prior to full retirement age and an "upper amount" for the year of full retirement age. Image 1.


CHANGE SUMMARY:

Update and maintain Social Security Retirement Earnings Test (RET) thresholds in Lifetime Planner.  In LTP, these thresholds are out of date and appear to use a simplified RET model with a higher than expected threshold amount and reduction factor.  The correct earning thresholds and reduction amounts are progressive, based on earnings and age. Image 1 

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THE ISSUE(s):

1.   In LTP, there exists only 1 RET threshold at $31,069 of wages (Image 2)     This value is much higher than the current SSA "lower amount" of $ 18,960 for 2021.   Also, it appears that the "upper amount" is not used in the model.  Cannot find / derive  the source / rational for this $ 31,069 threshold.

2.   In LTP, there exists only 1 reduction scheme commensurate with #1 (Image 2) and that is, for every $2 of excess earnings, the SS benefit will be reduced by $1 is currently implemented.   There appears to be no reduction value of $3/$1 normally associated with an "upper amount" ( see #1).   

3.   In LTP,  Social Security benefits revert back to original levels in the year of FRA (67).  Expected to see an upper threshold applied at FRA (67) and benefits restored at 68. Appears that benefits are restored early at FRA (67). Image 2.   Does LTP recognize FRA based on AGE as recorded in "About You"?  

4.   In LTP, reduced earnings, due to RET,  are not "paid back" after Full Retirement Age is attained.   In essence, reduced earnings are not lost, but amortized after FRA.  Example in Image 3.

5.   
Existing HELP content outdated - HELP references 2001/2002 LTP earning threshold of $10,680 with a 2/1 benefit reduction thereafter....in this IDEA thread.

some background....

6.   past post in 2017 indicates, from testing, an outdated LTP earning threshold of $14,160 with a 2/1 benefit reduction thereafter.  There appears to be no "upper amount" at that time.  So, some updates were apparently made in the application but no help content update or published release notes to explain the change.

7.   In testing in 2021, using both new and existing "qdata" files, LTP earnings threshold now appears to be $31,069 with a 2/1 benefit reduction thereafter.  Image 2.  So, again it seems some updates were made in the application but no help content update or published release notes to explain the change.   

Validation is straight forward and described in the 2017 post linked above.


THE CHANGE:

1.   
Update Social Security Retirement Earnings Test thresholds and reductions in Lifetime Planner per SSA.gov.  Note rules around use of lower and upper amounts.  A simplified model using only the lower benefit amount may be acceptable.

2.   Maintain these thresholds yearly as new figures are published.  
Maintenance releases for this and other LTP tax related tax changes need to be done yearly!

3.   Ensure RET only applies after filing for benefits (62+) then correctly reverts back to normal levels after FRA. LTP appears to get this (almost) right in concept...

4.   Ensure that RET 
correctly applies reductions separately between "You" or "Spouse'. That is, the spouse(s) who has earnings after filing for benefits is subject to RET on their own benefit.  LTP appears to get this right.

5.    Document in Plan Result tables when SS benefits is reduced to RET.

6.   Ensure "earnings" are defined correctly as a baseline for RET.  
Generally speaking earned income from wages and SE net income.  Only "salary" is tested in this post.

7.   Update HELP content to describe feature details.  
Do this regardless of decision to fix these issues!   This help content issue is reported as part of this IDEA thread.

8.   Tell your customers of changes in LTP using Release Notes.


Please consider voting for this IDEA.  Add your comments and thoughts as well.


IMAGE 1 - Retirement Earnings Test Exempt Amounts and History





IMAGE 2 - LTP RET Exempt Amounts and Reduction Values -  Age 65 to 67 (FRA)
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IMAGE 3 - Example of RET




REFERENCES:

How the Earning Test Works - SSA.gov

Income Limit Overview - Devin Carroll



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