The New Year may bring huge changes. The promising late COVID-19 vaccine results may end the pandemic soon. At the same time, President-elect Biden will take office on January 20, 2021, in a new era of politics on Capitol Hill.
However, some of the biggest changes in the coming year will be found in the “Social Security Program.” Whether you are receiving benefits or working towards final retirement, these changes may affect your life in 2021
This is the best social security news in 2020
The beneficiary is getting a raise (albeit small)
Just before May, the outlook for the U.S. economy was bleak, and 46 million retired workers depended on the Social Security Administration’s monthly benefit checks. The coronavirus pandemic has caused severe damage to the US economy, and the average prices of goods and services are falling.
In the spring and late summer, the federal government’s stimulus measures and the relaxation of state-level restrictions have restored the US economy. This has led to significant increases in the prices of goods and services in important expenditure categories (such as housing, medical services, and food). As a result, social security beneficiaries will receive a 1.3% cost of living adjustment (COLA) in 2021.
Before you burst the bubble, remember that this 1.3% COLA is in contact with the second smallest positive COLA on record since 1975. In fact, the past 11 years have been quite cruel to social security recipients, and the average COLA is only 1.4% within this range. In the past two decades, these continuously low COLAs have eroded the purchasing power of social security funds.
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The rich will pay more
There are three major sources of funding for social security: 12.4% payroll tax on income, interest income from its asset reserves, and welfare tax. By far, payroll taxes are the most important source of income, accounting for $944.5 billion of the $1.06 trillion collected in 2019.
This year, income between 0.01 and 137,700 dollars (wage and salary, but no investment income) is subject to social security tax. At the same time, any income in excess of $137,700 is exempt from payroll tax.
Next year, this taxable income cap (that is, the maximum taxable income cap) will increase by $5,100 to $142,800. Since 94% of working Americans earn less than the maximum taxable income each year, this increase will not affect them. But the other 6% may have to pay an additional $632.40 in payroll tax in 2021.
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The full retirement age is rising
As early as 1983, the Reagan administration passed the last comprehensive bipartisan reform of the social security program. The 1983 amendment taxed benefits, gradually increased payroll taxes, and stipulated a four-year gradual increase in the full retirement age, that is, retired workers are eligible to receive 100% of their monthly wages, that is, their The year of birth is determined.
By 2021, the full retirement age for those born in 1959 will increase by two months, reaching 66 years and 10 months. This will be a two-month increase in the full retirement age for two consecutive months, but this is only the eleventh since that age. In August 1935, the “Social Security Law” was signed into law, stipulating a full retirement age.
Your entire retirement age is like a line. If you start receiving your pension before this limit is reached, your monthly expenses will be permanently reduced by up to 30%. In contrast, waiting to receive your expenses after this line can increase your monthly earnings.
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Early filers who are also working may be able to retain more income
Not all seniors who receive social security retirement benefits leave the workforce. The idea of earning wages or salaries plus monthly social security expenditure sounds good, but if the Social Security Administration (SSA) earns too much, it may bring an early lawsuit against people who are paid before they reach full retirement age. ) Impose a fine.
For example, those early filers who did not reach full retirement age in 2020 can only earn US$18,240 (US$1,520 per month) for the entire year before the SSA begins to withhold some or all of the benefits. For every $2 of income above this threshold, $1 of benefits will be withheld. Withholding and payment also applies to seniors who will reach full retirement age in a given year but have not yet reached retirement age.
In 2021, early filers who have not reached the full retirement age can earn up to $18,960 ($1,580 per month) before tax withholding begins. This should enable early filers to choose to continue working and earn more.
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Rich people become richer
The last major change is that we will see the wealthiest social security beneficiaries pay for it.
Just as there is a ceiling for payroll taxes, there is also a ceiling for monthly benefits for full retirement age. Whether you have an average annual income of US$200,000 in 35 years or an average income of US$10 million during the same period, the maximum monthly payment for your retirement age in 2020 is US$3,011. Next year, the rich can become richer, and the maximum monthly benefit will reach full. The retirement age has increased to $3,148.
If you want to know how to get such a generous monthly benefit during retirement, please know that you will need to work for at least 35 years, meet or exceed the annual taxable income limit for these 35 years, and then wait until you receive the pension in full income Previous retirement age.