Social Security payments will grow by 1.3% in 2021. The program will also be adjusted in several important ways that could affect the Social Security payments you receive or how much you pay into the system.
Get ready for these Social Security changes coming in 2021:
— Social Security payments will increase by 1.3%.
— The earnings subject to the Social Security tax will climb to $142,800.
— Social Security beneficiaries age 65 and younger can earn up to $18,960 before their benefit is temporarily withheld.
— The full retirement age will increase to 66 and 10 months for those born in 1959.
Here’s a look at how much more you can expect from Social Security in 2021 and other ways the program will be tweaked in the coming year.
Social Security Payments Will Increase
The average Social Security benefit for retired workers is expected to climb by $20 to $1,543 per month as a result of the cost-of-living adjustment. Married couples in which both spouses receive benefits will see an estimated $33 increase to an average payment of $2,596 per month in 2021.
“The tiny raise this year will be effective in your January payment,” says Andy Landis, author of “Social Security: The Inside Story.” The maximum possible Social Security benefit for someone who retires at age 66 will be $3,148 in 2021, up $137 from 2020.
Social Security payments are adjusted each year to keep pace with inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers. The 1.3% Social Security cost-of-living adjustment for 2021 is down from 1.6% in 2020. Previous Social Security COLAs have ranged from zero in 2010, 2011 and 2016 to 14.3% in 1980.
The Social Security Administration will post personalized COLA notices online beginning in December 2020. You can view the benefit amount you will receive next year in the message center of your my Social Security account.
Part or all of your cost-of-living adjustment could be used to pay for Medicare premiums. “For many, the small raise will be gobbled up by an increase in Medicare premiums,” Landis says. “But a Medicare premium increase can never give you a net loss in your Social Security payment.”
A Higher Social Security Tax Cap
The maximum amount of earnings subject to Social Security tax will increase by $5,100 to $142,800 in 2021. Workers pay 6.2% of their earnings into the Social Security system until their income exceeds the taxable maximum.
“If you earn more than that in a Social Security-covered job, your Social Security taxation ends when you have earned $142,800,” says Jim Blankenship, a certified financial planner for Blankenship Financial Planning in New Berlin, Illinois, and author of “A Social Security Owner’s Manual.”
Those who earn more than $142,800 in 2021 will notice a bump in their paychecks once their earnings have surpassed the taxable maximum and they no longer have Social Security tax withheld from their salary.
Social Security Earnings Limits Climb
Social Security beneficiaries who continue to work will be able to earn $720 more in 2021 before part of their Social Security benefit is temporarily withheld. Social Security recipients age 65 and younger can earn up to $18,960 in 2021 before a benefit dollar is withheld for every $2 earned above the limit. In the year you turn your full retirement age, the Social Security earnings limit climbs to $50,520, up $1,920 from 2020, and the penalty declines to $1 withheld for every $3 in excess earnings.
Once you turn your full retirement age, there is no penalty for working and collecting Social Security benefits at the same time, and your benefit is recalculated to give you credit for your continued earnings and any benefits that were withheld in the past.
“There is no limit on earnings for workers who are full retirement age or older for the entire year,” says William Reichenstein, head of research at Social Security Solutions and professor emeritus at Baylor University.
An Older Social Security Full Retirement Age
People who will turn 62 in 2021 will need to wait until an older retirement age than existing Social Security beneficiaries in order to claim their full retirement benefit. The full retirement age for those born in 1959 is 66 and 10 months, two months older than the full retirement age of 66 and 8 months for those born in 1958. The full retirement age increases in two-month increments for those born between 1955 and 1959 until it reaches age 67 for everyone born in 1960 or later.
Workers who claim Social Security before their full retirement age receive reduced payments, and those with an older retirement age experience bigger reductions. In 2021, “If they elect to take benefits at age 62, they will see a 29.17% reduction of their full retirement age benefit,” says Jim Blair, a former Social Security administrator and lead consultant at Premier Social Security Consulting in Cincinnati. Those with an older full retirement age also have less opportunity to increase their Social Security payments via delayed claiming.
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Update 10/15/19: This story was originally published on an earlier date and has been updated with new information.