There is no social program in this country that has a greater impact on the economic well-being of seniors than social security. Every month, almost 65 million people receive a social security benefit, and more than 46 million of them are pensioners. Of these retirees, more than 3 out of 5 depend on their monthly payments to account for at least half of their income.
It is also a dynamic program. Despite the fact that a financial foundation has been laid for those who can no longer support themselves, the social security program undergoes a number of changes every year. It’s just that these updates were revealed by the Social Security Administration (SSA) last week.
Recipients get more money
October is the most important time of year for Social Security beneficiaries, primarily because it is when SSA announces the cost of living adjustment (COLA) for the coming year. Think of COLA as the “increase” that social security beneficiaries receive, designed to keep their benefits on a par with inflation.
In 2021, social security recipients will look at a good news / bad news scenario. The good news is simple: You get more money. SSA announced a 1.3% COLA for the coming year, which for the average retired employee will translate to an additional $ 20 per month, expecting an estimated monthly payout of $ 1,543 per month. Month before January 2021. Given that the prices of goods and services that went down between March and May due to the coronavirus disease 2019 (COVID-19) pandemic, a 1.3% COLA is a victory for the program’s 64.8 million recipients.
The bad news is that 1.3% binds to the second smallest positive COLA in history. But with inflation in shelters and medical care services exceeding 1.3%, older people will once again see the purchasing power of their social security income decline.
2. The full retirement age will be higher
The only change we knew for sure would happen in 2021 was an increase in the full retirement age (which is also called the “normal retirement age” by SSA). A person’s full retirement age is the age at which they can receive 100% of their monthly payment, determined by their year of birth.
By 2021, the full retirement age will be two months to 66 years and 10 months for people born in 1959 (ie beneficiaries who may become eligible next year). In short, claiming benefits at any time before you reach your full retirement age means accepting a permanent reduction in your monthly payout. Conversely, it may wait to take benefits until after 66 years and 10 months for workers born in 1959, pumping pension benefits.
Social Security’s full retirement age will peak at age 67 in 2022 for anyone born in 1960 or later.
High-wage earners can expect to pay more tax
Keep in mind that changes to the Social Security program do not only affect people who are currently receiving benefits. One of the biggest updates next year is an increase in the payroll tax limit.
The payroll tax is a social security workhorse. In 2019, it generated $ 944.5 billion of the $ 1.06 trillion raised by the program. Income is introduced using a tax of 12.4% of salary income (salary and salary, but not investment income), which varies between $ 0.01 and $ 137,700 as of 2020. Note that all salary income over $ 137,700 by 2020 is exempt from payroll tax.
By 2021, all income up to $ 142,800 will be taxable, which equates to an increase of $ 5,100. For the approx. 6% of workers expected to hit this ceiling are talking about a payroll tax increase of up to $ 632.40 next year.
If you’re wondering how the SSA came up with $ 142,800 as next year’s ceiling, it has to do with the annual rise in the National Average Wage Index (NAWI). Between 2018 and 2019, NAWI rose from $ 52,145.80 to $ 54,099.99 – a gain of 3.74% or 3.7% when rounded to the nearest tenth of a percent. Next year’s tax limit is 3.7% higher than $ 137,700 by 2020. It’s that simple.
The wealthy can get a greater monthly benefit in their pocket
Although high-wage earners will be tasked with opening their wallets a little wider in 2021, wealthy beneficiaries can also expect to receive more. After the SSA had limited the monthly retirement benefits to $ 3,011 for people of full retirement age in 2020, the maximum payment at full retirement age will increase to $ 3,148 per month in 2021. That is an additional $ 1,644 per year for wealthy workers.
In order to net this maximum monthly payout, workers should have done three things:
- Waited until their full retirement age to claim benefits.
- Worked at least 35 years, as each year fewer than 35 worked results in the $ 0 average being calculated in their eventual monthly payout.
- Hit or exceed the maximum taxable earnings ceiling in each of the 35 years that SSA takes into account when calculating a person’s pension benefit.
A check next to all three of these criteria allows a retiree to net the maximum monthly benefit.
5. Disability income thresholds are rising higher
There is no doubt that the primary task of social security is to financially protect our country’s retired workforce. But do not overlook the fact that 9.7 million recipients receive a monthly payment from the Social Security Disability Insurance Trust. In 2021, the income thresholds for benefits for disabled recipients will increase.
For example, non-blind disabled beneficiaries can earn up to $ 1,260 a month by 2020 without having to stop their social payouts. Next year, this threshold will increase $ 50 per month to $ 1,310. This means that non-blind disabled recipients are able to earn up to $ 600 extra annually without losing their benefits.
The increase is even greater for blind disabled recipients. People who fall into this category will be allowed to earn up to $ 2,190 per month in 2021 – $ 80 per month above the 2020 threshold – without stopping their benefits.
6. Retention thresholds for early archives get a boost
Social security has a number of ways it punishes early archives. No one is without a doubt more confusing or surprising to retirees than the pension pay test. In short, the pension service test allows the SSA to withhold some or all of the benefits of an early file if they earn above a preset income threshold. In 2021, these income thresholds are on the way higher.
For example, early filers who do not reach their full retirement age by 2020 are only allowed to earn up to $ 18,240 per year ($ 1,520 per month) before $ 1 in benefits can be withheld for every $ 2 in earnings above this threshold. By 2021, early filings that do not reach full retirement age could earn up to $ 18,960 annually or an additional $ 60 per month ($ 1,580 / month) before kicking in.
Early archives reaching full retirement age in 2021 will also see a boost in the withholding threshold. Next year, early filers who reach their full retirement age at some point during the year will be allowed to earn up to $ 50,520 ($ 4,210 per month) before $ 1 in benefits is withheld for every $ 3 in earnings above that threshold. For those who are curious, this is an increase of $ 160 per month from the 2020 level.
Please note that the pension earnings test no longer applies when you reach your full retirement age (regardless of when you claimed benefits), and withheld benefits are returned to beneficiaries in the form of a higher monthly payment after reaching full retirement age.
7. You will need to earn more to qualify for retirement
Last but certainly not least, working Americans will have to try a little harder to qualify for a Social Security retired worker benefit.
Despite what you may have heard, social security is not just given to someone for being born in the United States. To receive a pension benefit, you must have earned 40 lifetime work credits, of which a maximum of four points can be earned each year. These credits are allocated according to the individual income in a given year.
For example, workers received a lifetime credit in 2020 with $ 1,410 in wage income. In other words, if a worker networks at least $ 5,640 in wage income ($ 1,410 X 4) this year, they will receive a maximum of four credits.
In 2021, it takes $ 1,470 in earned income to earn a lifetime work credit or $ 5,880 for the entire year to maximize your social security credits.
Although people will have to work a little harder to secure a pension benefit from social security, the limit for qualifying is set relatively low.