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Congress Offers Skimpy Relief For Working Retirees

A new law will allow older Americans in the next century to work after age 65 without losing Social Security benefits.

Unfortunately, the law doesn’t do much for millions of Social Security recipients today who have long sought the right to work without paying prohibitive tax penalties.

Nor does the new law offer any relief at all to early retirees age 62 to 65. They must forego Social Security benefits, forget about working, or continue to pay the highest marginal tax rates in America on annual earnings above a ceiling of $8,280.

Ironically, the biggest beneficiaries of the change stand to be older baby boomers, who are largely oblivious to their good fortune.

The windfall was buried in yet another in a series of stopgap spending bills to extend the nation’s debt limit and keep the federal government afloat during the ongoing budget flap. The overall package was signed by the president without fanfare two weeks ago.

On the surface, provisions relating to a Society Security earnings ceiling appeared to apply solely to senior citizens. The media gave it scant scrutiny.

But in fact, a little digging shows the impact extends all the way to the younger generation.

Taking the 65-to-70 age group first, under the old law, Social Security recipients this year could earn up to $11,520 with no reduction in benefits. Above that, they would have paid a penalty of $1 in lost benefits for each $3 they earned. Plus, they also must pay all the other usual taxes on these earnings.

Under the new law, the old ceiling of $11,520 becomes $12,500 this year.

The ceiling is bumped up $1,000 a year through 1999, then $1,500 in 2000 to a level of $17,000. In 2001 the ceiling suddenly shoots up $7,000 to $25,000. This is followed by another giant step of $5,000 in 2003 to a final height of $30,000.

Thereafter, increases are indexed to the growth in average U.S. wages.

“Most people assumed the increase to $30,000 was coming all of a sudden,” says Dan Ferrell, spokesman for the Social Security Administration’s Northwest regional office in Seattle. “But it’s strung over seven years, with two big spurts right at the end.”

Thus, millions of older boomers starting to turn 50 this year will be able to cash in on sharply higher allowable earnings levels when they reach full retirement age at 65.

There is no earnings ceiling for workers 70 plus.

But Congress didn’t do any favors for early retirees.

Millions of retirees between 62 and 65 - the group hit hardest of all by corporate downsizing today - will still be subject to the same old penalty. Above $8,280 earnings, the government takes half right off the top. The same taxes the rest of the population pays are taken out of what’s left.

The result for some is a marginal tax rate the total of federal and state taxes owed on the next dollar earned that exceeds 100 percent. In other words, the worker pays out more than he or she makes.

This may give pause to older boomers who increasingly will feel the impact of job cutbacks that target more mature workers. Public policy discourages early retirement. Corporate practices promote it.

Meantime, other forces will begin to affect younger workers, according to the Social Security Administration’s Ferrell.

“Beginning in 2003,” he says, “the age for full Social Security benefits (benefits that are not reduced because of age) will start to go up gradually. For people born in 1938 - who will turn 65 in 2003 - the age for full benefits will be 65 plus two months.”

In the next five years, the full retirement age goes up two months annually until 2008, after which it plateaus for a dozen years. Thus, full retirement age for persons born between 1943 and 1954 will be 66.

Then in 2020, the age will rise two months annually for another half dozen years. For persons born 1960 and after, full retirement age will be 67.

Back to the present, the net affect of the above for all of today’s “retired” workers - on both sides of 65 - is far less help then Congress lead many to expect. In recent years, bills repeatedly have passed one house or the other doubling the height of the earnings ceiling, or eliminating it altogether.

Now, Congress finally gets together on a new law that will make a minimal difference to most working retirees today and for years to come.

, DataTimes MEMO: Associate Editor Frank Bartel writes on retirement issues each Sunday. He can be reached with ideas for future columns at 459-5467 or fax 459-5482.

The following fields overflowed: CREDIT = Frank Bartel The Spokesman-Review

Associate Editor Frank Bartel writes on retirement issues each Sunday. He can be reached with ideas for future columns at 459-5467 or fax 459-5482.

The following fields overflowed: CREDIT = Frank Bartel The Spokesman-Review

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