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7 Changes to social security in 2021



There is no social program in this country that is more important to the financial well-being of the elderly than Social Security. Every month, nearly 65 million people receive social security benefits, and more than 46 million of them are retired workers. Of these retirees, more than 3 in 5 rely on monthly payments to make up at least half of their income.

It is also a dynamic program. Although it lays a financial foundation for those who can no longer provide for themselves, the social security program undergoes a number of changes every year. It so happens that these updates were unveiled by the Social Security Administration (SSA) last week.

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7;s a closer look at the seven biggest changes to social security in 2021.

A person who grabs a social security card between the thumb and forefinger.

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1. Recipients will receive more money

October is the most important time of the year for Social Security beneficiaries, mainly because it is when the SSA announces the Cost of Living Adjustment (COLA) for next year. Think of COLA as the “raise” that Social Security recipients receive, designed to keep their benefits on par with inflation.

For 2021, Social Security beneficiaries are looking into a good / bad news scenario. The good news is simple: you are getting more money. The SSA has announced a 1.3% COLA for next year, which for the average retired worker will translate into an extra $ 20 per month, reaching an estimated monthly payment of $ 1,543 per month by January 2021. Considering that prices for goods and services fell between March and May due to the 2019 coronavirus pandemic (COVID-19), a 1.3% COLA is a win for the program’s 64.8 million recipients.

The bad news is that 1.3% is tied to the second smallest positive COLA in history. But with inflation in reception and medical services exceeding 1.3%, seniors will see the purchasing power of their social security income decrease once again.

A person who fills out an application form for social security benefits.

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2. The age of full retirement is increasing

The only change we knew for sure would happen in 2021 was an increase in the full retirement age (which is also known as the “normal retirement age” by the SSA). A person’s full retirement age is the age at which they can receive 100% of their monthly payment, as determined by the year of birth.

In 2021, the full retirement age will increase by two months, up to 66 years and 10 months for people born in 1959 (i.e. beneficiaries who can become re-eligible next year). Put simply, applying for benefits anytime before reaching full retirement age means accepting a permanent reduction in your monthly payment. Conversely, waiting for benefits until after 66 years and 10 months for workers born in 1959 can increase retirement benefits.

Social Security’s full retirement age will peak at the age of 67 in 2022 for anyone born in 1960 or later.

Two social security cards on top of a W2 tax form.

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3. High-income workers can expect to pay more taxes

Keep in mind that changes to the social security program don’t just affect people who are currently receiving benefits. One of the biggest updates next year is an increase in the payroll tax profits cap.

The payroll tax is the workhorse of social security. In 2019, it generated $ 944.5 billion of the $ 1.06 trillion raised by the program. Revenue is generated by applying a 12.4% tax on earned income (wages and salary, but not investment income) between $ 0.01 and $ 137,700, as of 2020. Note, all earned income over $ 137,700 in 2020 are exempt from payroll tax.

In 2021, all income from work up to $ 142,800 will be taxable, with an increase of $ 5,100. For the roughly 6% of workers who are expected to hit this limit, we’re talking about a payroll tax hike to $ 632.40 next year.

If you’re wondering how the SSA got to $ 142,800 as its next year limit, it has to do with the year-over-year increase in the National Average Wage Index (NAWI). Between 2018 and 2019, the NAWI went from $ 52,145.80 to $ 54,099.99, a gain of 3.74% or 3.7% when rounded to the nearest tenth of a percent. Next year’s tax cap is 3.7% higher than $ 137,700 in 2020. It’s that simple.

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4. The wealthy can pocket a bigger monthly benefit

While high-income workers will be tasked with opening their portfolios somewhat wider in 2021, wealthy beneficiaries can also expect to receive more. After the SSA capped monthly retirement benefits to $ 3,011 for people of full retirement age in 2020, the maximum payment at full retirement age increases to $ 3,148 per month in 2021. That’s an extra $ 1,644 per month. year for rich workers.

To offset this maximum monthly payment, workers should have done three things:

  • He waited until full retirement age to claim the benefits.
  • He has worked at least 35 years, as fewer than 35 results each year translates to an average of $ 0 in their final monthly payment.
  • Reach or exceed the maximum taxable income in each of the 35 years that SSA takes into account in calculating a person’s retirement benefit.

A check mark next to all three of these criteria allows a retiree to compensate for the maximum monthly benefit.

Two social security cards and two hundred dollars on top of a payment slip.

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5. The disability income thresholds increase

There is no doubt that the primary task of Social Security is to financially protect our nation’s retired workforce. But don’t overlook the fact that 9.7 million beneficiaries receive a monthly payment from the Social Security Disability Insurance Trust. In 2021, the income thresholds at which benefits for disabled beneficiaries cease will increase.

For example, non-blind disabled beneficiaries can earn up to $ 1,260 per month in 2020 without social security payments being interrupted. Next year, this threshold will increase by $ 50 per month to $ 1,310. This means that non-blind disabled beneficiaries can earn up to $ 600 more per year without losing their benefits.

The increase is even greater for blind and disabled beneficiaries. People who fall into this category will be able to earn up to $ 2,190 per month in 2021 – $ 80 per month more than the 2020 threshold – without their benefits being interrupted.

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6. Retention thresholds for early filers get a boost

Social Security has a number of ways in which it penalizes early compilers. No one is arguably more confusing or surprising for retired workers than the retirement income test. Put simply, the retirement earnings test allows the SSA to withhold some or all of the early signup benefits if they earn above a set income threshold. In 2021, these income thresholds are heading upwards.

For example, the first filers who don’t reach their full retirement age in 2020 can only earn up to $ 18,240 per year ($ 1,520 per month) before $ 1 in benefits can be withheld for every $ 2 of earnings above this. threshold. In 2021, the first filers who don’t reach full retirement age can earn up to $ 18,960 per year or an extra $ 60 per month ($ 1,580 / month) before withholding tax goes into effect.

The first filers who reach full retirement age in 2021 will also see an increase in the withholding tax threshold. Next year, first filers who reach full retirement age at some point during the year will be able to earn up to $ 50,520 ($ 4,210 per month) before $ 1 in benefits is retained for every $ 3 of earnings. above this threshold. For those who are curious, that’s a $ 160 per month increase from 2020 levels.

Please note that the retirement earnings test is no longer applicable once you reach full retirement age (regardless of when you claimed the benefits) and withheld benefits are returned to beneficiaries in the form of a higher monthly payment after reaching the full retirement age.

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7. You will need to earn more to be eligible for a retirement benefit

Last but certainly not least, working Americans will have to try a little harder to qualify for a retired Social Security worker benefit.

Despite what you may have heard, Social Security is not simply given to someone for being born in the United States. To receive a pension benefit, you must have earned 40 credits for life work, of which a maximum of four credits can be earned each year. These credits are awarded based on a person’s income in a given year.

For example, workers received a lifetime job credit in 2020 with $ 1,410 in earned income. In other words, if a worker earns at least $ 5,640 of earned income ($ 1,410 X 4) this year, they will receive the maximum of four credits.

In 2021, it will take $ 1,470 of earned income to earn a lifetime job credit or $ 5,880 for the full year to maximize Social Security job credits.

While people will have to work a little harder to secure a Social Security pension, the bar to qualify is relatively low.




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