Every October, the Social Security Administration (SSA) publishes upcoming changes to its social security program. The social security program is dynamic and impacts nearly 65 million people as of 2020. In 2021, social security payments will grow by 1.3% and the changes made will take effect on January 1. These changes can impact your retirement age, how much you get paid per month, and more. It is good practice to create a “my Social Security” account with the SSA here and following the instructions that pop up from the “Create Your Account Today” button. Your account is your online gateway to securely access many social security services. Your account allows you to check your social security statement, verify your earnings as reported, estimate your future benefits, change your address, and more. All of this information is relevant to you, even when you are not retired.
2021 Social Security Changes
Recipients will get more money
The first significant change for 2021 is that beneficiaries will receive a 1.3 percent cost-of-living adjustment (COLA) increase to their monthly benefits. This annual adjustment is designed to keep pace with inflation. For frame of reference, the 2019 COLA increase was 2.8 percent, while the 2020 increase was 1.6 percent. But what does a 1.3% increase mean for your monthly payments? The average social security recipient can expect to receive an additional $20 per month.
Earnings subject to social security tax will increase to $142,800
In other words, high earners can expect to pay more to social security taxes. The maximum taxable earnings rate rose from $137,700 to $142,800. However, the rate of social security tax that employees are required to pay remains the same, at 6.2 percent. In cases like these, the employer matches this payment. For people who are self-employed, the rate remains at 12.4 percent. The change is the income cap taxable amount, which has increased to 142,800 dollars. Maximum earnings increase the longer you hold out to receive your benefits. Recipients can max out their payments at age 70 rather than the regular full retirement age, with a 32 percent increase.
Retirement age will increase to 66 years and 10 months
As people continue to live longer and healthier lives, the age of full retirement also continues to rise. People who turn 62 in 2021 will have to wait until an older age to claim their full retirement benefits. It’s true that the earliest you can take your benefits is age 62. However, Workers who claim social security before their full retirement age will receive permanently reduced payments. If you turn 62 in 2021, you cannot claim your full retirement benefit until age 66 and ten months. Unless there are changes to the current law, anyone born in 1960 or later will reach full retirement age at 67. By the time someone turns 70 years old, it is highly recommended to receive your social security benefit because benefit increases will stop at that time.
Changes to benefit reduction rules
2021 will see an increase in the amount of money working social security recipients can earn before benefit reduction. If you are working while receiving social security, it’s possible that the SSA can temporarily withhold all or part of your benefits. As of 2021, the new rules are this:
- before your full retirement age, you will be able to earn up to $18,960.
Anyone who falls into this category will have $1 deducted from their benefits for every $2 earned that exceeds this allowable earnings amount. This limit increased by $720 from the 2020 limit.
- If you reach your full retirement age in 2021, you may earn up to $50,520, up from last year’s $48,600.
However, for every $3 in earnings over the limit, you will see your benefits reduced by $1. This situation only applies to money earnings in the months before hitting the full retirement age. At full retirement age, no benefits will be withheld for continuing to work.
Social security and disability changes
Social security’s main job is to protect our retired workforce, but there are nearly 10 million beneficiaries from the Social Security Disability Trust. 2021 will see a small rise in disability benefits for disabled beneficiaries. For example, legally blind recipients can earn a maximum of $2,190 a month without having their benefits stopped, which is an increase of approximately $80. Non-blind recipients also saw an increase for maximum total earnings, up $50 from last year to a total of $1,310 per month.
Lifetime work credits cost more money
Last but not least, Americans are now going to have to work a bit harder to qualify for social security retirement benefits. The credit earning threshold is increasing by $60 from 2020. If you were born in 1929 and beyond, you must earn a minimum of 40 credits (max of four per year) over your working life to qualify for social security benefits. For example, a working American citizen will need to earn at least $1470 income in one year to earn one lifetime work credit. If the worker earns more than $5880 in income in one given year, they will receive a max of four credits. In 2020, the number was $1410.
Planning for retirement is more complex and challenging than ever before. Every year the numbers change, and every year Americans are left confused and concerned about their social security benefits. The truth is that by 2035, we could see a dramatic shift in benefit options unless Congress intervenes to protect social security. The most recent Social Security and Medicare Boards of Trustees annual report projects that both social security and disability trust funds will be depleted by 2035.
There is a lot to consider regarding social security benefits and your retirement. Accurately keeping up with all of the changes every year is a daunting task. That’s why we’re here to help our retired and aging clients. Contact an elder law attorney with Michaelson & Associates if you need assistance handling legal matters that affect older or disabled adults, including social security benefits, and other important issues. The estate planning and elder law attorneys at Michaelson & Associates are here to help you with any questions, and would welcome the opportunity for a free consultation to discuss your questions and concerns.