2021 continues to be the year of big changes. To add to these changes, there may also be a significant shift in Social Security benefits. How will these upcoming changes affect the future of Social Security? Moreover, how will it affect you personally?
Here’s what you need to know. In the complex and shifting world of government-mandated social insurance programs, benefits are indexed to inflation. Each year, the data changes in accordance with the cost of living.
Social Security Changes We’ll See in 2021[i]
To help retired workers manage inflation costs, the Social Security benefit payment is set to increase by $20 to $1,543 per person per month. For retired married couples where both partners receive benefits, the amount goes up by $33 to $2,596 per month. The maximum potential benefits increase for a worker who retired at 66 is $3,148 per month. That’s an increase of $137 from 2020 to 2021.
The increase may not seem like much, but the annual payment adjustment is determined by the Consumer Price Index for Urban Wage Earners and Clerical Workers. The 1.3 percent benefit increase is precisely calculated to help retirees meet the inflated cost of living in 2021.
Higher Tax Cap
The maximum amount of earnings subject to Social Security tax is also on the rise this year. Increasing $5,100 from last year, the Social Security tax cap now maxes out at $142,800. 6.2 percent of your earnings go towards paying into the Social Security system, so once you exceed $142,800, you’ll no longer have Social Security tax deducted from your paycheck.
Earnings Limit Increase
If you continue to work while receiving Social Security benefits, you’ll be able to earn $720 more than last year before your payments start to be partially withheld. In 2021, recipients 65 and younger will be able to earn up to $18,960 before the earnings limit comes into effect. Over that number, one benefit dollar for every $2 earned is deducted from the payment.
The original Social Security Act[ii], instituted back in 1935, stated that members of the workforce had to remain employed until 65 to receive full retirement benefits. This system went relatively unchanged for nearly 50 years, but in 1983, President Reagan signed legislation increasing the retirement age to 67. This change would be phased in over 22 years to help make it digestible to workers nearing retirement.
Long story short, this legislation means that if you were born between 1955 and 1959, the full retirement age (FRA) falls somewhere between 66 and 67. For those born in ‘59, the FRA is 66 and 10 months. And for all those born post-1960, the full retirement age is definitively 67.
Social Security and You
So what does this mean for you?
If you’ve retired or are getting ready to do so, you likely have some questions about this year’s crop of Social Security changes. You may be wondering if it’s the right time to claim your Social Security benefits. Or perhaps you’ve already claimed them, and you’re wondering how these changes to Social Security might affect your financial future.
Unfortunately, there is no one-size-fits-all right answer to these fiscal queries. Your Social Security outcomes are dependent on you—your priorities, habits, and future. Delving into the world of finances can seem complicated and overwhelming – not exactly the sort of feelings conducive to a happy retirement. You deserve to live comfortably and feel secure with your financial choices, but sometimes it’s difficult to know where to start.
But don’t panic! When you need expert advice, make an appointment with your advisor. We’ll answer your questions and walk you through your options, so you’ll always know where you stand.
[i] https://www.investopedia.com/retirement/social-security-changes/ 11 February 2021
[ii] https://www.history.com/topics/great-depression/social-security-act 11 February 2021
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