In the United States, over 65 million retirees, surviving family members, and people with disabilities get a Social Security benefits check every month. These same people have come to expect certain changes to their benefits on a yearly basis.
Of course there’s the cost of living adjustment known as COLA that the government announces every October, but many times the Social Security Administration or the U.S. federal government make additional changes that can affect monthly benefit amounts, Social Security taxes, or eligibility requirements for millions of working and retired citizens.
As 2020 comes to an end, you’re probably thinking about possible changes to your Social Security benefits and if your Medicare coverage will also be affected. Here’s a look at four changes to expect in the new year – 2021.
Social Security Cost of Living Adjustment – COLA
Every year the Social Security Administration adjusts benefits to keep up with the inflation rate of the country. This year’s 1.3 percent adjustment is smaller than last year’s which was 1.6 percent.
So, with a COLA of 1.3 percent, the national average monthly Social Security benefit of $1514.00 goes up by $19.68 per month. That means those who get that amount can expect to get $1533.68 a month starting in January of 2021.
If you’re wondering how much more money you’ll get every month on your Social Security check in 2021, you can go online to the official Social Security Administration’s site in December 2020 and check your personalized Social Security account. You can also calculate the difference by figuring out 1.3 percent of your current benefit and adding those numbers together.
Social Security Tax Cap
This Social Security change concerns the maximum taxable earnings for people who are still working and paying into the Social Security system rather than those getting benefits already.
All actively employed people in the U.S. pay 6.2 percent of the money they earn in taxes to the Social Security Administration via the federal government up to a point called the tax cap or maximum taxable amount. In 2020, this amount is $137,700.00. As of January 2021,this amount will be increased by $5,100.00, which means your maximum taxable earnings for Social Security will become $142,800.00. So, if you hit that magic number of $142,800.00 during 2021, you’ll get a bit more money on your paycheck, around 6.2 percent more.
Social Security Earnings Limit
Millions of retirees who get Social Security benefits either keep working or go back to work at some point after retirement. You can still get your monthly benefits without penalty if you earn an amount that is below the Social Security earnings limit.
As it stands in 2020, the Social Security Administration allow people who are under their full retirement age to get up to $18,240.00 in annual earnings before Social Security makes deductions. If you earn more than $18,240.00 and you are under full retirement age during the entire fiscal year, Social Security deducts $1.00 for every $2.00 of your benefits.
In 2021, Social Security recipients who are younger than 65 (not full retirement age) will be able to earn up to $18,960.00 per year. This is an increase of $720.00. If you go over this amount, $1.00 out of every $2.00 of your benefits will be deducted.
If you reach your full retirement age while working in 2021, your Social Security earnings limit goes up to $50,520.00 before your benefits are penalized. At this point, the penalty is a deduction of $1.00 for every $3.00 of your benefits.
After you reach full retirement age there is no penalty for working and getting Social Security benefits.
Full Retirement Age
Anyone who is 62 years old can apply for Social Security if they meet the requirements of having worked for at least 40 quarters and have paid Social Security taxes. At this age benefits are reduced, and you don’t get your full benefit amount unless you wait until your full retirement age. This age is determined by the year you were born. For example, people born in 1960 reach full benefit age at 67.
In 2021, those who retire before their full retirement age will have a greater reduction in their monthly benefit amount than a 62 year old who got Social Security in 2020. In 2021, this reduction goes up to 29.17 percent of full retirement benefits.
Even though there are changes to Social Security on an annual basis, these changes don’t affect your Medicare coverage. If you have questions about your retirement benefits or your Medicare coverage for health care, contact the Social Security Administration or your Medicare plan directly.