The ‘Barron’s Roundtable’ panel provides information and analysis on smart ways to invest for retirement.
The New Year can bring big changes. Promising results from the advanced COVID-19 vaccine may soon end the pandemic. Meanwhile, the inauguration of President-elect Joe Biden on January 20, 2021 will usher in a new era for Capitol politics.
But some of the biggest changes next year will be found in the Social Security program. Whether you are receiving benefits or working for an eventual retirement, it is possible that these changes will affect what you will take home in 2021 or later.
THIS WAS THE BEST NEWS FOR SOCIAL SECURITY IN 2020
Beneficiaries are receiving a raise (albeit small)
Even in May, the outlook was bleak for the United States economy and for the more than 46 million retired workers who rely on a monthly check for Social Security benefits. The coronavirus pandemic was wreaking havoc on the United States economy and average prices for goods and services were falling.
The federal stimulus and the easing of state restrictions during the late spring and summer allowed the US economy to regain its equilibrium somewhat. This allowed prices for goods and services in major spending categories (for example, shelter, health care services and food) to rise significantly. As a result, Social Security beneficiaries will receive a 1.3% cost of living (COLA) adjustment in 2021.
Before opening the sparkling wine, remember that this 1.3% COLA represents the second lowest positive COLA recorded since 1975. In fact, the last 11 years have been quite brutal for Social Security beneficiaries, with an average of COLA only 1.4% over that period. These persistently low COLA have eroded the purchasing power of Social Security dollars over the past two decades.
SOCIAL SECURITY CHECKS ARE INCREASING IN 2021. HERE IS HERE WHY BUYING ENERGY IS NOT
The rich will pay more
Social Security has three sources of funds: the 12.4% payroll tax on earned income, the interest earned on its equity reserves and the taxation of benefits. The payroll tax is by far the most important revenue generator, accounting for $ 944.5 billion of the $ 1.06 trillion collected in 2019.
This year, earnings earned (wages and salaries, but not investment income) between $ 0.01 and $ 137,700 are subject to Social Security payroll tax. Meanwhile, any income earned in excess of $ 137,700 is exempt from payroll tax.
In the coming year, the upper limit of this taxable limit, known as the maximum taxable earnings limit, will increase from $ 5,100 to $ 142,800. Since 94% of American workers earn less than the maximum taxable income limit each year, this increase will not affect them. But the other 6% may owe up to $ 632.40 more in payroll tax in 2021.
5 OF THE BEST WAYS TO INCREASE SOCIAL SECURITY BENEFITS
The full retirement age is increasing
In 1983, the Reagan government approved the latest comprehensive bipartisan review of the Social Security program. The 1983 Amendments introduced benefit taxation, gradually increased payroll taxation and established a gradual four-decade increase in the full retirement age – that is, the age at which a retired worker is entitled to receive 100% of his monthly payment as determined by the year of birth.
In 2021, the full retirement age will increase in two months to 66 years and 10 months for people born in 1959. This will be the fifth consecutive year that the full retirement age has increased by two months, but marks only the 11th time since the The Social Security Law was enacted in August 1935 that the full retirement age was changed.
Your full retirement age is like a line in the sand. If you start receiving your retirement benefits before reaching this line, your monthly payment will be permanently reduced by up to 30%. On the other hand, waiting to receive your payment until after that line can increase your monthly benefit.
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The first architects who are also working may be able to maintain a larger share of their income
Not all seniors who receive a Social Security retirement benefit leave the job market. The idea of pocketing a salary or salary plus a monthly Social Security payment probably sounds fantastic, but the Social Security Administration (SSA) can penalize the first filers (those who get paid before they reach full retirement age) if they win very.
For example, first enrollees who will not reach full retirement age in 2020 can only earn $ 18,240 per year ($ 1,520 per month) before the SSA begins to retain some or all of its benefits. For every $ 2 in earnings over that limit, $ 1 in benefits is retained. Retention of benefits also applies to older people who will reach full retirement age in a given year, but have not yet done so.
In 2021, the first filers who will not reach their full retirement age can earn up to $ 18,960 ($ 1,580 per month) before the retention kicks in. This should allow the first binders to earn a little more if they decide to continue working.
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The rich get richer
The last big change is that we will see the wealthiest Social Security beneficiaries filling their pockets.
Just as there is a limit to the amount of income earned that is subject to payroll tax, there is also a limit to the monthly benefits paid at full retirement age. Whether you have an average of $ 200,000 a year for 35 years or $ 10 million over the same period, payments are limited to $ 3,011 per month at full retirement age in 2020. Next year, the rich can become even more wealthy, with the maximum full retirement age monthly benefit increasing to $ 3,148.
If you are wondering how you can achieve such a generous monthly benefit during retirement, know that you will need to work for at least 35 years, reach or exceed the maximum taxable income limit for each of those 35 years and wait until you are full age retirement benefits before receiving your retirement benefit.