Social Security income is a necessity for many Americans. After retirement, Social Security may be the only income that is coming in on a regularly basis, and because of this, the amount of these benefits is critical for financial planning, especially for individuals that have only limited amounts of savings. Now, in order to keep up with inflation and the cost of living, retirement benefits generally increase each and every year. However, this yearly income boost varies from year to year and may not always be as large as you might hope.
Changes to Social Security Benefits
If you rely on Social Security as your primary income after retirement, the year-to-year change in benefits may be extremely important. However, the annual changes may not be substantial enough to make a significant difference in your standard of living. In fact, it may hardly be enough to keep up with the increasing cost of goods that you purchase each month.
As inflation and wages increase each year, so do average retirement benefits. The benefits a person receives each year are determined by their work history and the number of years they were a member of the workforce. Benefits are also determined based on when a person decides to retire and begin accepting benefits. In general, the later you begin receiving benefits, the higher the amount you receive. Changes to Social Security benefits are irregular, so it is impossible to plan increases years in advance.
Over the past decade, retirement benefits have increased from between $13 to $57 per month on average. For 2020, the average benefit increase is $42, which is an increase of 2.9 percent. No matter what your previous benefits were, you will see an increase of 2.9 percent for this coming year, with the average benefit package coming in at $1,503 per month.
This 2.9 percent increase was determined by wage increases and cost of living adjustments. Average earnings increased by 1.3 percent when compared to previous years. The cost of living adjustment, which is also known as COLA, was determined to have increased by 1.6 percent.
Factoring Additional Fees and Increased Prices
Compared to the past several years, 2020 shows an overall benefit increase on the higher side of the range we listed above. However, this is not necessarily a good thing, especially if you are on a set income. Oftentimes, people feel that the Social Security Agency does not accurately account for the true increases in the costs of common household goods. Because of this, your extra Social Security benefits will most likely all go towards paying for the same things you already purchase, and they may even seem too low to fully cover the basic costs.
In addition, be sure to consider your Medicare payments. If you are enrolled in a Medicare plan, your premium payments will be automatically deducted from your monthly benefits. On average, Medicare insurance costs in 2020 have risen by around $9 per month, which then lowers your extra benefits to just $33 per month by the time you see the deposit.
Does your Income Affect your Benefits?
As of January 1, 2020, the maximum taxable earnings limit for workers under the age of 66, which is “full” retirement age, has been increased as well. For those under the age of 66, the maximum taxable limit has increased to $18,240. Anyone making more than this amount will have $1 deducted from their benefits for every $2 they make over the maximum.
For those who will be turning 66 during the year 2020, the maximum taxable earnings limit has been increased from $46,920 to $48,600 per year. For these individuals, $1 will be deducted from their benefits for every $3 of income over this limit. It is important to note that these deductions will only occur until the month that the worker is turning 66. Likewise, for Social Security recipients age 66 and older, there is no limit on earnings.
Retiring under the age of 65? Understanding Your Medicare Benefits(Opens in a new browser tab)
How Does Medicare Calculate My Premium?(Opens in a new browser tab)