There is no social program in this country that is more important for the financial well-being of older people 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 out of 5 rely on their monthly payments to account for at least half of their income.
This is also a dynamic program. Despite providing a financial basis for those who can no longer support themselves, the social security program undergoes a number of changes each year. It so happens that these updates were presented by the Social Security Administration (SSA) last week.
Here is a more detailed look at the seven biggest changes in social security in 2021
1. Recipients will receive more money
October is the most important time of the year for Social Security recipients, mainly because the SSA announces a cost-of-living adjustment (COLA) for the coming year. Think of COLA as the “increase” that social security recipients receive, designed to keep their benefits on par with inflation.
For 2021, social security beneficiaries are considering a good news / bad news scenario. The good news is simple: You get more money. SSA announced a 1.3% COLA for the coming year, which for the average retired worker will become an additional $ 20 per month, calculated to be an approximate monthly payment of $ 1,543 per month until January 2021. of goods and services targeted lower between March and May as a result of the 2019 coronavirus disease pandemic (COVID-19), 1.3% COLA is a victory for 64.8 million recipients of the program.
The bad news is that 1.3% is related to the second smallest positive COLA in history. But as inflation in shelters and health services exceeds 1.3%, senior citizens will once again see a decline in the purchasing power of their social security income.
2. The full retirement age is getting higher
The only change we knew for sure was going to happen in 2021 was the increase in the full retirement age (also known as the “normal retirement age” by the SSA). The full retirement age is the age at which he can receive 100% of his monthly payment, 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 (ie beneficiaries who may receive a new right next year). Simply put, claiming benefits at any time before reaching your full retirement age means accepting a permanent reduction in your monthly payment. Conversely, waiting to receive benefits until after 66 years and 10 months for workers born in 1959 can pump pensions.
The full retirement age of social security will reach a peak of 67 years in 2022 for anyone born in 1960 or later.
3. High-income earners can expect to pay more taxes
Keep in mind that changes to the social security program do not only affect people who are currently receiving benefits. One of the biggest updates next year is the increase in the wage tax ceiling.
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. Revenues are paid by applying a 12.4% income tax (salaries and wages, but not investment income), ranging between $ 0.01 and $ 137,700 from 2020. Note that all earned income over $ 137,700 in 2020 is exempt from payroll tax.
In 2021, all earned income up to $ 142,800 will be taxable, an increase of $ 5,100. For approximately 6% of workers expected to reach this limit, we are talking about raising the payroll tax to $ 632.40 next year.
If you’re wondering how the SSA came out with $ 142,800 as a ceiling for next year, it’s related to the increase in the country’s annual average wage index (NAWI). Between 2018 and 2019, NAWI rose from $ 52,145.80 to $ 54,099.99 – a gain of 3.74% or 3.7% when it rounded to the nearest tenth of a percent. Next year’s tax line is 3.7% higher than $ 137,700 in 2020. It’s that simple.
4. The rich can get more monthly allowance
Although high-income earners will be tasked with opening their portfolios a little wider in 2021, wealthy beneficiaries can also expect to receive more. After the SSA limited monthly retirement benefits to $ 3,011 for full retirement age in 2020, the maximum full retirement pay will increase to $ 3,148 per month in 2021. That’s an additional $ 1,644 per year for wealthy workers .
To achieve this maximum monthly payout, workers must have done three things:
- They waited until their full retirement age to claim benefits.
- They have worked for at least 35 years, as each year less than 35 results are an average of $ 0 in their eventual monthly payout.
- Achieved or exceeded the maximum taxable income limit in each of the 35 years that the SSA takes into account when calculating the pension benefit per person.
Checking all three of these criteria allows the retiree to receive the maximum monthly benefit.
5. Disability income thresholds are rising higher
There is no doubt that the main job of social security is to protect the nation’s financially retired workforce. But don’t ignore the fact that 9.7 million beneficiaries receive monthly payments from the Social Security Trust for Disability. In 2021, income thresholds, when benefits cease for beneficiaries with disabilities, will rise higher.
For example, non-blind beneficiaries with disabilities can earn up to $ 1260 per month in 2020 without having to stop their social security payments. The following year, that threshold increased by $ 50 per month to $ 1,310. This means that non-blind beneficiaries with disabilities can earn up to $ 600 extra per year without losing their benefits.
The increase is even greater for blind beneficiaries with disabilities. People who fall into this category will be eligible to earn up to $ 2,190 per month in 2021 – $ 80 per month above the 2020 threshold – without losing their benefits.
6. The hold thresholds for early file submissions are boosted
Social security has several ways of sanctioning early archivists. No one can be more confusing or surprising to retired workers than the retirement income test. Simply put, the retirement income test allows the SSA to withhold some or all of the early filing benefits if they earn above a pre-set income threshold. In 2021, these income thresholds are directed higher.
For example, early archivists who will not reach full retirement age in 2020 are entitled to earn only up to $ 18,240 per year ($ 1,520 per month) before withholding $ 1 in compensation for every $ 2 in profit. above this threshold. In 2021, early archivists who will not reach full retirement age can earn up to $ 18,960 per year or an additional $ 60 per month ($ 1,580 / month) before opting out.
Early archivists who will reach full retirement age in 2021 will also see an increase in the retention threshold. Next year, early archivists who have reached full retirement age at some point in the year will be allowed to earn up to $ 50,520 ($ 4,210 per month) before withholding $ 1 in compensation for every $ 3 in profits above that. prag. For those who are curious, this is an increase of $ 160 per month compared to 2020 levels.
Please note that the retirement benefit test is no longer applicable once you reach full retirement age (regardless of when you claimed benefits), and withheld benefits are returned to recipients in the form of a larger monthly payment after reaching full retirement age.
7. You will have to earn more to qualify for a pension benefit
Last but not least, but certainly not least, working Americans will have to try a little harder to qualify as a retired Social Security worker.
However, as 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 will have to have earned 40 lifetime employment credits, of which a maximum of four credits can be earned each year. These loans are granted according to the individual’s income for a given year.
For example, workers received a lifetime employment loan in 2020 with $ 1,410 in earned income. In other words, if a worker earns at least $ 5,640 in earned income ($ 1,410 X 4) this year, he or she will receive a maximum of four credits.
In 2021, you will need $ 1,470 in earned income to earn one lifetime loan, or $ 5,880 for the entire year to maximize your Social Security work loans.
Although people will have to work a little harder to provide social security pension benefits, the ranking bar is set relatively low.