Bill targets Social Security earnings limits as retirement trends shift

A proposal in Congress to eliminate a rule that reduces Social Security benefits for working retirees comes as more Americans rethink what retirement looks like and opt for flexible, phased transitions instead of a hard stop.

The Senior Citizens’ Freedom to Work Act, introduced by Sen. Rick Scott (R-Fla.) and Rep. Greg Murphy (R-N.C.), would repeal the retirement earnings test. That provision reduces benefits for individuals who claim Social Security before reaching full retirement age and continue to work, CNBC reported.

“This bill will get rid of the unfair retirement earnings test so that seniors who want to stay in the workforce can do so without being punished or robbed of their hard-earned benefits,” Scott said during a March 25 Senate aging committee hearing.

CNBC added that under current law, beneficiaries who begin collecting benefits early — typically before ages 66 to 67 — face income limits. In 2026, individuals below full retirement age can earn up to $24,480 annually before penalties apply.

Beyond that, the Social Security Administration withholds $1 in benefits for every $2 earned.

For those reaching full retirement age in 2026, the limit rises to $65,160, with $1 deducted for every $3 earned above the threshold before their birthday. The penalty disappears once full retirement age is reached.

Although withheld benefits are later recalculated and restored, critics say the policy discourages continued employment.

Johnny Taylor Jr., president and CEO of the Society for Human Resource Management, told CNBC the earnings test can be especially burdensome for lower-income workers.

“For people who make a lot of money, it doesn’t matter to them,” Taylor said. “But if you’re in that middle income or lower bracket, where losing dollars in the moment will mean the difference between you being able to pay for your medicine or food, then that is a disincentive (to work), period, full stop.”

Policy debate, financial implications

Supporters of repealing the earnings test argue it reflects outdated policy.

Created in 1935 during the Great Depression, the rule was designed to encourage older workers to leave jobs for younger Americans. Critics say it is now widely misunderstood and counterproductive, CNBC added.

Still, concerns remain about the impact on Social Security’s finances. The program’s trust funds are projected to be depleted by 2034.

The bill has been referred to committees in both chambers, where its prospects remain uncertain as lawmakers weigh its costs against shifting retirement realities.

Retirement becomes more flexible

The legislative push aligns with broader shifts in how Americans approach retirement.

Rising living costs and debt are driving many to remain in the workforce longer or transition gradually, according to Fidelity Investments’ 2026 State of Retirement Planning Study.

The survey found 72% of Americans expect to retire on their own terms, up from 67% a year earlier, while 61% plan to phase into retirement rather than stop working abruptly.

Many anticipate supplementing income through gig work (35%), starting a small business (29%) or consulting part time (26%).

Financial pressures are a major factor shaping these decisions. More than half of respondents (51%) said rising living costs compete with saving for retirement, while 36% cited inflation and 35% pointed to monthly expenses as top concerns.

Health care also looms large, with 81% expecting high costs in retirement.