On Tuesday, October 13, 2020, the Social Security Administration released important facts and figures for 2021 - including cost-of-living adjustments (COLA) for retirees and tax changes for the currently employed.
The Good? Benefits Are Increasing
Those receiving Social Security benefits will see a 1.3 percent COLA increase in 2021. This change will impact around 70 million Americans - including 8 million SSI beneficiaries.1
For the average retiree receiving Social Security benefits in January 2021, this will translate to a roughly $20 increase in monthly benefits - $1,543 up from $1,523. For couples both receiving benefits, the average will increase to $2,596 from $2,563.1
Of note, this year’s COLA increase is lower than the previous two years - although, of course, a cost-of-living adjustment is never guaranteed in the first place. In 2009, 2010 and 2016, COLA bottomed out at zero percent. And in 2016, the COLA was a mere 0.3 percent - substantially lower than the 2.8 percent increase we saw in 2018.2
The Bad? Taxes Are Increasing Too (For Some)
For those still working, the amount of earnings subject to Social Security tax has increased 3.7 percent from $137,700 in 2020 to a maximum of $142,800 in 2021.1 Employees and their employers will each continue to pay 6.2 percent of applicable earnings toward the 7.65 percent combined Social Security and Medicare rate.1 The 3.7 percent increase in applicable income is only in reference to the Social Security portion of the combined tax rate. Self-employed individuals will still be responsible for paying the full 15.3 percent of the Social Security and Medicare tax rate.1
For reference, the maximum Social Security tax in 2021 for a high-earning employee would be $8,853.60 - or $17,707.20 total including both the employee and employer’s contribution. This is compared to 2020’s maximum of $8,537.40, or $17,074.80 total.
The Need To Know? Earning Limits For Retirees
For those under the Social Security Administration’s determined full retirement age who are receiving a paycheck while receiving SS benefits should be aware of 2021’s earning limit changes.
Currently, full retirement age is considered to be 66, if you were born between 1943 and 1954. Below is a chart provided by the SSA in regards to full retirement age:3
Year of Birth
|Full Retirement Age|
||66 & 2 months
66 & 4 months
||66 & 6 months
||66 & 8 months
||66 & 10 months
|1960 & later
Those receiving benefits who have not yet reached full retirement age will be docked $1 in benefits for every $2 earned above $18,960 (or $1,580 per month) in 2021. This is an increase of $720 from 2020's $18,240 per year limit.
It’s important to note that this limit increases somewhat substantially for those who will be reaching full retirement age that year. For 2020, that income limit is $48,600 per year, or $4,050 per month. In 2021, retirees will see that limit increase to $50,520 per year, or $4,210 per month. Applicable income earned above this amount will be withheld at a rate of $1 dollar for every $3 earned above the limit.
Beginning in the month you reach full retirement age, you will no longer be subject to earning limits.
Keeping track of changes in tax rates and future income is an important part of having a well-established retirement plan. If you’re wondering how these changes will affect your own financial standings, reach out to your financial advisor for more information.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
Juncture Wealth Strategies, LLC (“JWS”) is an SEC registered investment adviser located in Scottsdale, AZ, Lancaster, OH and Tempe, AZ. JWS and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC registered investment advisers by those states in which JWS maintains clients. JWS may only transact business in those states in which it is registered / notice filed, or qualifies for an exemption or exclusion from registration / notice filing requirements. The JWS website is limited to the dissemination of general information regarding its investment advisory services to United States residents residing in states where providing such information is not prohibited by applicable law. Accordingly, the publication of JWS website on the Internet should not be construed by any consumer and/or prospective client as JWS’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Furthermore, the information resulting from the use of tools or other information on this internet website should not be construed, in any manner whatsoever, as the receipt of, or a substitute for, personalized individual advice from JWS. Any subsequent, direct communication by JWS with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of JWS, please contact the United States Securities and Exchange Commission on their website at www.adviserinfo.sec.gov or and/or the state securities law administrators for those states in which JWS is registered. A copy of JWS’s current written disclosure statement discussing JWS business operations, services, and fees is available from JWS upon written request. JWS does not make any representations as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to JWS’s website or incorporated herein, and takes no responsibility therefore. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
ACCESS TO THIS WEBSITE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND WITHOUT ANY WARRANTIES, EXPRESSED OR IMPLIED, REGARDING THE ACCURACY, COMPLETENESS, TIMELINESS, OR RESULTS OBTAINED FROM ANY INFORMATION POSTED ON THIS WEBSITE OR ANY THIRD PARTY WEBSITE LINKED TO THIS WEBSITE.