Social Security changes are coming in 2021 and while some people are a bit alarmed, overall nothing too huge is coming. Sure, some things are big but not in the ways most would expect.
According to Investopedia, Social Security recipients will be getting a raise for 2021, maximum earnings in regard to the Social Security tax will increase, the amount someone on SS benefits can earn without having their SS benefits affected will be increased, and well a lot more. All in all, things don’t seem to be changing too terribly much. If anything a lot of these changes seem quite positive as a whole.
AARP wrote as follows going over some of these changes:
Larger checks for retired, disabled workers –
The 1.3 percent COLA that goes into effect in January was calculated based on the year-over-year rate of inflation. Specifically, it’s the difference between the Consumer Price Index for Urban Wage Earners (CPI-W), a government measurement of prices typically paid for a basket of goods and services, in the third quarter of 2019 and the third quarter of 2020. The modest 1.3 percent increase reflects the relatively low rate of inflation over the past year. In years when there is no change in the index, or if prices have fallen year over year, there is no COLA.
For the average retired worker, the monthly Social Security benefit will rise by $20 to $1,543 in January from $1,523 in 2020. For the average retired couple who both collect benefits, the payment will rise by $33 to $2,596, up from $2,563. The average disabled worker will see monthly benefits increase by $16 to $1,277 from $1,261.
The maximum Social Security check for an individual retiring at full retirement age will rise to $3,148 a month in 2021 from $3,011 — an increase of $137.
Tax cap goes higher –
The payroll tax that funds Social Security is set at 12.4 percent on eligible wages. Employees pay 6.2 percent and employers pay the other 6.2 percent (with self-employed workers paying the entire 12.4 percent). The money paid in by today’s workers goes to cover current benefits, with any excess going into the Social Security trust fund.
As it does every year, the maximum amount of earnings subject to the payroll tax is going up. In 2020, the maximum amount of taxable earnings is capped at $137,700; in 2021, that figure climbs to $142,800. Earnings over that amount aren’t subject to Social Security taxes next year.
Earning test limits climb –
Social Security was designed with retirees in mind, so those who work and take retirement benefits before their full retirement age get temporarily reduced benefits. In 2020, beneficiaries under full retirement age have $1 in benefits held back for every $2 they earn from working above $18,240 a year ($1,520 a month). In 2021, that rises to $18,960 a year, or $1,580 a month.
In the year you hit full retirement age, the earnings test limit leaps to $50,520 a year ($4,210 a month) as of 2021, up from $48,600 a year ($4,050) in 2020, and SSA holds back $1 for every $3 you earn. The month you reach full retirement age, Social Security stops holding money back because of your work income and there are no longer earnings limits. Social Security effectively returns the money it withheld by increasing your monthly payout when you reach full retirement age.
It should also perhaps be mentioned that there will be something of a break when it comes to Medicare premiums. While expected to rise AARP says it will most likely be less than initially thought. This meaning that that increase might not happen as we thought it would. That being said, we won’t know until things are set in motion.
To learn more about all of this take a look at the video below. There is a lot going on when it comes to SS in the year to come and well, it’s nothing too crazy but also something to be aware of especially if you’re someone who has to live off of your benefits. What do you think about all of this?