Key Social Security changes you should know about in 2021
Retirees can expect at least four major social security changes this year, but more could be on the way depending on the policy goals of the next president.
Here are the changes that could affect you.
The full retirement age is rising
The full retirement age is when you cannot receive reduced social security benefits. If you do not collect at this age, your benefits will increase even more each year until you turn 70.
Last year the full retirement age was 66 and 8 months, this year 66 and 10 months. In 2022 it will reach 67 years.
"It is important to postpone retirement until full retirement ages of 66 and 10 months in 2021, and if possible until you turn 70," said Herschel Clanton, certified financial planner at Chancellor Wealth Management, Inc.
The benefits increase
The social security changes come at a time when the coronavirus pandemic has expected to deplete the retirement and survivor's insurance trust fund, which finances benefits before 2035 as fewer Americans contribute to the system. (Source: Getty Creative)
Starting this month, Social Security and Disability benefits will increase 1.3%, with the average monthly benefit increasing by $ 20, from $ 1,523 to $ 1,543, according to the Social Security Agency. That increase is 1.6% in 2020 and 2.8% in 2019.
"This is the smallest increase since 1975," said Matt Beacon, chief financial planner at Carmichael Hill & Associates. "In addition, the standard Medicare Part B premium has also increased, so retirees don't feel all of these pay increases."
These changes in benefits are based on the urban wage earner consumer price index - also known as CPI-W. This is a monthly measure of the average change over time in the prices that urban wage earners and office workers pay for a basket of consumer goods and services.
Income subject to social insurance
Workers this year who earn up to $ 142,800 will be subject to Social Security tax in 2021. Last year, that threshold was lower at $ 137,700. These changes are based on increases in average wages.
"Social security tax rates will remain the same for 2021 - 6.2% for employees and 12.4% for the self-employed," said Marguerita Cheng, financial advisor at Blue Ocean Global Wealth, a finance company.
Income limit increases
This year, that limit has increased from $ 18,240 to $ 18,960. Get $ 1 Social Security for every $ 2 you make. (Source: Getty Creative)
Anyone who collects social security before full retirement age is subject to the earnings test. If your income exceeds a certain limit, you are not entitled to 100% of your benefits. The withheld benefits are added back after reaching full retirement age.
This year, that limit will be increased from $ 18,240 in 2020 to $ 18,960.
"When you reach this limit, $ 1 will be deducted from your payment for every $ 2 you exceed the limit. When you reach full retirement age in 2021, you can earn $ 50,520 ($ 48,600 in 2020) "said Cheng. "This is called a forced suspension."
Proposals from President-Elect Joe Biden
As part of his retirement proposals, President-elect Joe Biden has some Social Security changes in store if he can get them through Congress.
The elected president wants to increase the minimum social security benefits to 125% of federal poverty. In addition, he would like those who have only worked for 10 years to be entitled to a pro rata benefit.
Biden also plans to replace the CPI-W, the index that measures the cost of living adjustments for social security benefits, with the CPI-E, which is based on spending for adults aged 62 and over and takes into account higher healthcare costs. The CPI-W covers households in which at least half of their household income comes from office or paid jobs.
President-elect Joe Biden speaks at The Queen Theater in Wilmington, Delaware on January 8, 2021 to announce key candidates for his business and jobs team. (Photo by JIM WATSON / AFP via Getty Images)
Under Biden's plan, caregivers caring for children under the age of 12 or family members with disabilities could also receive social security credits with earnings equal to the average monthly wage.
Those who have received retirement benefits for at least 20 years can also expect a higher monthly check under Biden's plan if it passes. Biden also wants to eliminate penalties for teachers who have drawn retirement benefits from various sources and allow them to get social security benefits sooner.
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Dhara Singh is a reporter at Cashay and Yahoo Finance. Follow her on Twitter at @Dsinghx.
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