There is not a social program in this country which is more important for the financial well-being of seniors than social security. Every month, approximately 65 million people receive Social Security benefits, and more than 46 million of them are retired employees. Of these retirees, more than 3 rely on their monthly payments and account for at least half of their income.
It is also a dynamic program. Despite laying a financial foundation for those who can no longer provide for themselves, the social security program undergoes many changes each year. It just so happens that this update was unveiled by the Social Security Administration (SSA) last week.
Let’s take a closer look at the seven biggest changes to Social Security in 2021.
1. The recipient is going to get more money
October is the most important time of year for Social Security recipients, primarily because SSA announces the Living Adjustment (COLA) for the coming year. Think of COLA as the “increase” that Social Security beneficiaries receive that is designed to keep their benefits on par with inflation.
For 2021, Social Security beneficiaries are looking at a good news / bad news. The good news is simple: you are getting more money. SSA announced a 1.3% COLA for the upcoming year, which is going to translate into an additional $ 20 a month for the average retired worker working for an estimated monthly payment of $ 1,543 a month by January 2021. Considering the prices of goods and reduced services between March and May as a result of the Coronovirus Disease 2019 (COVID-19) epidemic, the 1.3% COLA program is a win for 64.8 million recipients.
The bad news is that 1.3% ties for the second-smallest positive cola in history. But with inflation in the shelter and a 1.3% increase in medical-care services, seniors are going to see the purchasing power of their social security income decline once again.
2. Full retirement age is getting higher
The only change for the fixed change to occur in 2021 was the increase in the full retirement age (also known by SSA as the “normal retirement age”). A person’s full retirement age is the age when they can receive 100% of their monthly payments, as determined by their year of birth.
In 2021, the full retirement age will increase by two months to 66 years and those born in 1959 to 10 months (ie, beneficiaries who can become new eligible next year). Simply put, claiming benefits at any point before reaching your full retirement age means accepting a permanent decrease in your monthly payments. In contrast, for workers born in 1959, waiting for benefits after 6 years and 10 months can increase retirement benefits.
The full retirement age of Social Security will be the peak for anyone aged 60 or later in 2022 at the age of 67.
3. Higher incomes can expect to pay more taxes
Keep in mind that changes in social security programs do not affect only those currently receiving benefits. One of the biggest updates of next year is the Payroll Tax Earning Cap.
Payroll tax is the domain of social security. In 2019, it produced $ 944.5 billion of the $ 1.06 trillion collected by the program. The income is brought in by applying a 12.4% tax on income (wages and salaries, but not investment income), to be between $ 0.01 and $ 137,700 by 2020. Of note, all earned income in 2020 is more than $ 137,700, exempt from payroll tax.
In 2021, all earned income up to $ 142,800 will be taxable, representing an increase of $ 5,100. For about 6% of workers who are expecting to hit this cap, we are talking about a payroll tax increase of up to $ 632.40 next year.
If you’re wondering how SSA came up with $ 142,800 as next year’s cap, it would have to do with a year-over-year increase in the National Average Salary Index (NAWI). Between 2018 and 2019, NAWI rose from $ 52,145.80 to $ 54,099.99 – up 3.74% or 3.7% when reaching the nearest tenth of a percentage point. Next year’s tax cap is 3.7% higher than the $ 137,700 in 2020. This is so easy.
4. The rich can get a big monthly profit
Although high earners will be tasked to widen their wallet a bit in 2021, well-off earners can also expect to receive more. SSA placed monthly retirement benefits at the level of $ 3,011 for persons of full retirement age in 2020, increasing the maximum payment to full retirement age to $ 3,148 in one month in 2021. This is an additional $ 1,644 a year for wealthy workers.
To net this maximum monthly payment, workers must perform three tasks:
- He waited until his full retirement age to claim benefits.
- Worked for at least 35 years, because each year worked resulted in at least $ 35 on average in their average monthly payment.
- The SSA hits or exceeds the maximum taxable income of 35 years in the account when calculating an individual’s retirement benefits.
A check next to these three criteria allows a retiree to receive maximum monthly benefits.
5. Disability income thresholds climb higher
There is no question that the primary job of social security is to financially protect the retired employees of our country. But do not ignore the fact that 9.7 million beneficiaries are receiving monthly payments from the Social Security Disability Insurance Trust. In 2021, the income thresholds where the conflict for the beneficiaries benefited cease will climb to a higher level.
For example, non-blind disabled beneficiaries can earn up to $ 1,260 a month in 2020 without withholding their Social Security payments. Next year, the limit is increasing from $ 50 per month to $ 1,310. This means that non-blind disabled beneficiaries can earn an additional $ 600 a year without losing their benefits.
The increase is even greater for visually handicapped beneficiaries. Those who fall into this category will be allowed to earn up to $ 2,190 a month in 2021 – $ 80 per month compared to the 2020 threshold – without stopping their profit.
6. Withholding thresholds for early filers is a boost
There are many ways in which social security punishes early filmmakers. No one is definitely more confused or surprised for retired employees than the Retirement Workers Test. Simply put, the retirement income test precludes some or all of the early filer’s benefits when the SSA accrues above a predetermined income threshold. In 2021, these income limits are increasing more.
For example, early filers who will not reach their full retirement age in 2020 are only allowed to earn $ 18,240 per year ($ 1,520 per month) before every $ 2 in earnings above this threshold. May be withheld for. In 2021, early filers who will not reach full retirement age can earn $ 18,960 annually or an additional $ 60 per month ($ 1,580 / month) before kicking off.
Early filmmakers reaching full retirement age in 2021 will also see an increase in the extent of the moratorium. The following year, early filmmakers hit their full retirement age at some point during the year, will be allowed to earn before $ 50,520 ($ 4,210 a month) in profits before $ 1 every $ 3 in earnings above this limit Is withheld for For those who are curious, there is a $ 160 increase a month from the 2020 level.
Note that the retirement income test no longer applies when you reach your full retirement age (when you claim benefits), and the benefits received as higher monthly payments after reaching full retirement age Is returned.
7. To qualify for retirement benefits you must earn more
Last but certainly not least, working Americans are going to try a little harder to qualify for Social Security retired worker benefits.
Regardless of what you may have heard, social security is not given to anyone born in the United States. To receive retirement benefits, you will need to earn 40 lifetime work credits, of which a maximum of four credits can be earned each year. These credits are given according to the income of a person in a given year.
For example, workers received a lifetime work credit in 2020 with $ 1,410 in earned income. Put another way, if a worker traps at least $ 5,640 in income earned this year ($ 1,410 X 4), they will receive a maximum of four credits.
In 2021, it would take $ 1,470 in earned income for a lifetime or $ 5,880 for a full year to maximize your Social Security work credit.
Although people will have to work a little harder to ensure retirement benefits from Social Security, the bar for qualifying is set relatively low.