Who is ready for the big changes in Social Security in 2021?

May the New Year bring big changes. Promising late stage Covid-19 Vaccine results may soon end the epidemic. Meanwhile, the president-elect Joe Biden Opening on January 20, 2021, will open a new era for Policy On Capitol Hill.

But some of the biggest changes can be found next year at Social security a program. Whether you are receiving benefits or working towards your ultimate achievement the retirementThese changes will likely affect what you’ll take home in 2021 or later.

This was the best Social Security news of 2020

Beneficiaries receive a bonus (albeit small)

As recently as May, the outlook was bleak for The American economy And more than 46 million retirees Workers Those who rely on a monthly accrual check from Social Security. The coronavirus pandemic was wreaking havoc on the US economy and average prices for goods and services were declining.

The federal stimulus and easing statewide restrictions during the late spring and summer have allowed the US economy to regain its position somewhat. This allowed prices for goods and services in important spending categories (such as shelter, medical care services, and food) to move significantly higher. As a result, Social Security recipients will receive a 1.3% Cost of Living Adjustment (COLA) in 2021.

Before you conquer the Babylonian, bear in mind that 1.3% of COLA correlates with the second smallest positive factor recorded since 1975. In fact, the past 11 years have been very brutal for social security recipients, with an average COLA of only 1.4% during that period. . These ever-changing assets have eroded the purchasing power of Social Security dollars over the past two decades.

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The rich will pay more

Social Security has three sources of financing: a 12.4% payroll tax on earned income, interest income earned on asset reserves, and taxation of benefits. The payroll tax is, by far, the most important source of revenue, representing $ 944.5 billion of the $ 1.06 trillion raised in 2019.

This year, earned income (wages and salaries, but not investment income) between $ 0.01 and $ 137,700 is subject to Social Security payroll tax. Meanwhile, any earned income over $ 137,700 is exempt from payroll tax.

Next year, the upper limit of this taxable threshold, known as the maximum taxable earnings ceiling, increases by $ 5,100 to $ 142,800. Since 94% of employed Americans are earning less than the maximum taxable earnings each year, this increase won’t affect them. But the remaining 6% could owe up to an additional $ 632.40 in payroll tax in 2021.

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The age of full retirement is rising

Back in 1983, the Reagan administration passed the last comprehensive bipartisan reform of the Social Security program. The 1983 amendments introduced benefits taxes, gradually increased payroll taxes, and established a four-decade incremental increase for the full retirement age – the age at which a retired worker is entitled to 100% of his monthly payments, such as determined by their year of birth.

In 2021, the full retirement age will increase by two months to 66 years and 10 months for people born in 1959. This will be the fifth year in a row that the full retirement age will increase by two months, but it is only the eleventh time since the Social Security Act was signed. Social Affairs to become law in August 1935, as the full retirement age was changed.

Your full retirement age is like a streak in the sand. If you start getting your retirement benefits before hitting this line, your monthly payments will be permanently reduced by up to 30%. By contrast, waiting to receive your payments beyond this line can increase your monthly earnings.

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Early file submitters who also work may be able to keep more of their income

Not all elderly people who receive Social Security retirement pensions leave the workforce. The idea of ​​getting a wage or salary in addition to monthly Social Security payments might sound great, but the Social Security Administration (SSA) may penalize early applicants (those who take their payments before reaching full retirement age) if they are earning too much.

For example, first applicants who will not reach full retirement age in 2020 are only allowed to earn $ 18,240 a year ($ 1,520 a month) before SSA begins withholding some or all of their benefits. For every $ 2 in earnings above this limit, $ 1 in benefits is withheld. Withholding benefits also applies to elderly people who will reach full retirement age in a given year, but have not yet done so.

In 2021, first applicants who will not reach full retirement age can earn up to $ 18,960 ($ 1,580 a month) before kicks are withheld. This should allow early applicants to earn a little more if they choose to continue the business.

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Rich people get richer

The last big change is that we’ll see the richest Social Security recipients fill their pockets.

Just as there is a cap on the amount of earned income that is subject to payroll tax, there is also a cap on the monthly benefits paid at full retirement age. Whether it’s an average of $ 200,000 a year over 35 years or $ 10 million over the same time frame, payments are set at $ 3,011 a month at full retirement age in 2020. In the next year, the rich could get richer. , With the maximum full monthly benefit increasing the retirement age to $ 3,148.

If you are wondering how you can achieve such a bountiful monthly benefit during retirement, know that you will need to work for at least 35 years, exceed or exceed the maximum taxable earnings in each of those 35 years, and wait until the retirement age is complete before taking the benefits the retirement.