By Rebecca Geyerm Rebecca W. Geyer & Associates PC
The Social Security Administration (SSA) publishes upcoming changes to its social security program every October that take effect on January 1 of the next year. These changes can make a difference in how you plan for or live during your retirement years. It is good practice to create what is known as a "my Social Security" account with the SSA here by clicking the "Create Your Account Today" button. Your account is an online gateway that provides interactive content and secure access to many online social security services. Your account allows you to check your social security statement, verify your earnings as reported, estimate your future benefits, change your address, and more. All of this information is relevant to you, whether you are retired or not.
The first notable change for the year 2021 is that beneficiaries will receive a 1.3 percent cost-of-living adjustment (COLA) increase to their monthly benefits. This annual adjustment to your benefit is designed to keep pace with inflation based on the CPI-W provided by the Bureau of Labor Statistics. The increase matches the same amount as the CPI-W if it increases more than .1 percent year to year between last years, and this year's third quarter. In 2019 the COLA increase was 2.8 percent, while 2020 saw 1.6 percent. For the year 2021, the average social security recipient will receive an additional $20 per month.
The maximum taxable earnings rate rose from $137,700 to $142,800. The rate of social security tax that employees are required to pay remains at 6.2 percent. Note that the employer matches this payment unless you are self-employed, where the rate is 12.4 percent. The change is the income cap taxable amount, which has increased to $142,800. As this taxable amount increases, so does the SSA's maximum earnings amount to calculate retirement benefits. Maximum earnings increase the longer you hold out to receive your benefits. Recipients can max out their payments at age 70 rather than the regular full retirement age, with a 32 percent increase.
The age of full retirement continues to rise. The earliest you can take your benefits is age 62; however, claiming your social security before full retirement age results in a permanently reduced payout. In 2021, if you turn 62, your full retirement age will be age 66 and ten months. Unless there are changes to the current law, anyone born in 1960 or later will reach full retirement age at 67. Benefit increases continue until the age of 70, at which point there is no incentive to delay receiving your social security benefit.
There is an increase in 2021 to the amount of money working social security recipients can earn before benefit reduction. The SSA can temporarily withhold all or part of your benefits if you are working while receiving social security. In 2021, before your full retirement age, you will be able to earn up to $18,960. You will have $1 deducted from your benefits for every $2 that exceed this allowable earnings amount. The 2021 annual limit is an increase of $720 over the 2020 limit.
If you reach your full retirement age in 2021, you may earn up to $50,520, up from last year's 48,600 dollars. However, for every $3 earnings over the limit, your benefits will be reduced by $1. This situation only applies to money earnings in the months before hitting the full retirement age. At full retirement age, no benefits will be withheld for continuing to work.
There is also a small rise in disability benefits in 2021 for the nearly 10 million Americans receiving these benefits. Legally blind recipients can receive a maximum of $2,190 a month, which is an increase of $80, while non-blind recipients will have a maximum benefit increase of $50 a month to $1,310.
Finally, the credit earning threshold is increasing by $60 from 2020. If you were born in 1929 and beyond, you must earn a minimum of 40 credits (max of four per year) over your working life to qualify for social security benefits. This increase means for the year 2021; it will take $1,470 in earnings per credit. The credit number required for disability still depends on your age and at what age you became disabled.
Planning for retirement is more complex and challenging than ever before. While all of these numbers are accurate from the SSA today, looking ahead, the year 2035 could see a dramatic shift in your benefits unless Congress intervenes to protect social security. In the most recent Social Security and Medicare Boards of Trustees annual report, projections are that both social security and disability trust funds will be depleted by 2035. If this happens, beneficiaries will receive about 75 percent of their scheduled benefits in 2035 until at least the year 2093.
There is a lot to consider regarding social security benefits and your retirement. Payouts, rules, and percentages are always changing, which is why having a my Social Security is so beneficial for you. The tools available allow you to try different retirement scenarios and see how it will impact your bottom line of benefits. Accurately keeping up with all of the changes is a daunting task. It is very helpful to contact an elder law attorney specializing in a wide range of legal matters that affect older or disabled adults, including social security benefits and other important issues. We would be happy to help you with any questions, and welcome the opportunity to meet with you.
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