The new year can bring major changes. Promising late-stage results of the COVID-19 vaccine may soon end the pandemic. Meanwhile, President Joe Biden’s inauguration on January 20, 2021, will usher in a new era of politics on Capitol Hill.
But some of the biggest changes in the coming year can be found in the Social Security program. Whether you receive benefits or work towards the final pension, it is possible that these changes will affect what you take home in 2021
This was the best news for social security in 2020
Recipients receive a raise (albeit a small one)
As recently as May, the outlook was bleak for the US economy and the 46 million plus pensioners who count on a monthly social security benefit check. The coronavirus pandemic caused chaos in the US economy, and average prices for goods and services fell.
Federal stimulus and a easing of state levels during the late spring and summer months allowed the U.S. economy to recover somewhat. This allowed the prices of goods and services in important expenditure categories (such as shelter, medical treatment and food) to rise significantly. As a result, social insurance beneficiaries will receive a 1.3% cost of living adjustment (COLA) in 2021.
Before you break it up, remember that this 1.3% COLA band for the second smallest positive COLA on record since 1975. The last 11 years have actually been quite brutal for recipients of social security, with an average COLA of only 1.4% above this range. These persistently low COLAs have eroded the purchasing power of social security dollars over the past two decades.
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Wealthy people will pay more
Trygd has three sources of financing: payroll tax of 12.4% of earned income, interest income earned on the asset reserves and taxation of benefits. The payroll tax is without a doubt the most important revenue generator, amounting to 944.5 billion dollars out of 1.06 trillion dollars collected in 2019.
This year, earned income (salary and salary, but not investment income) is between $ 0.01 and $ 137,700 subject to social security payroll tax. In the meantime, wage income is exempt from wage tax.
Next year, the upper limit of this taxable threshold, known as the maximum taxable income limit, will rise by $ 5,100 to $ 142,800. Since 94% of working Americans earn less than the maximum taxable income limit each year, this increase will not affect them. But the other 6% could owe up to $ 632.40 extra in payroll taxes in 2021.
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Full retirement age increases
Back in 1983, the Reagan administration passed the latest comprehensive, two-part revision of the Social Security program. The changes in 1983 introduced taxation of benefits, gradually increased payroll taxation and established a gradual increase in full retirement age for four decades – ie the age a pensioner is eligible to collect 100% of his monthly payment, as determined by the 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 has increased by two months, but it is only the 11th time since the Social Security Act was signed into law in August 1935 that full retirement age has been changed.
Full retirement age is like a line in the sand. If you start taking your pension benefits before you reach this line, your monthly payment will be permanently reduced by up to 30%. However, if you are waiting to take your payout along this line, you can inflate your monthly benefit.
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Early filers who are also working may be able to retain more of their income
Not all older people who receive a pension benefit from the social insurance leave the workforce. The idea of paying out a salary or a salary plus a monthly social security payment probably sounds fantastic, but the Social Security Administration (SSA) can penalize early filings (those who take the payment before they reach full retirement age) if they earn too much.
For example, early filers who do not reach full retirement age by 2020 can only earn $ 18,240 for the year ($ 1,520 a month) before the SSA begins to withhold some or all of the benefits. For every $ 2 in income above this threshold, $ 1 in benefits is withheld. Benefit deductions also apply to the elderly who want to reach full retirement age in a given year, but who have not yet done so.
In 2021, early filers who do not reach full retirement age can earn up to $ 18,960 ($ 1,580 a month) before holding back kicks. This should allow early archives to earn a little more if they choose to continue working.
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The rich get richer
The last big change is that we get to see the wealthy social insurance recipients pad their wallets.
Just as there is a ceiling on the amount of earned income that is subject to payroll tax, there is also a ceiling on monthly benefits paid at full retirement age. Whether you have an average of $ 200,000 annually over 35 years or $ 10 million over the same time frame, payments are limited to $ 3,011 per month at full retirement age in 2020. Next year, the rich can get even richer, with the maximum The monthly benefit to full retirement age increases to $ 3148.
If you’re wondering how you can get such a plentiful monthly benefit during retirement, you know you have to work at least 35 years, beat or exceed the maximum taxable income limit in each of the 35 years, and wait until you retire before retirement.