Retirees can expect at least four key changes to Social Security this year, but more could be on the way depending on the next president’s policy goals.
Here are the changes that could affect you.
Full retirement age increases
The full retirement age is when you can collect unreduced Social Security benefits. If you don’t collect at that age, your benefits increase even more per year after that until you turn 70.
Last year, the full retirement age was 66 and 8 months, while this year it is 66 and 10 months. In 2022, it will reach 67 years.
“It’s important to delay retirement until full retirement age which is 66 and 10 months in 2021 and until 70 if possible,” said Herschel Clanton, certified financial planner at Chancellor Wealth Management, Inc.
Starting this month, the Social Security and disability benefits will rise by 1.3%, with the average monthly benefit inching up by $20 from $1,523 to $1,543, according to the Social Security Administration. This increase compares with 1.6% in 2020 and 2.8% in 2019.
“This makes it tied for the smallest increase since 1975,” said Matt Beacon, lead financial planner at Carmichael Hill & Associates. “What’s more, the standard Medicare Part B premium also increased so not all of that pay bump will be felt by retirees.”
These benefit changes are based on the consumer price index for urban wage earners — otherwise known as CPI-W. This is a monthly measure of the average change over time in the prices paid by urban wage earners and clerical workers for a market basket of consumer goods and services.
Earnings subject to Social Security tax
Workers this year who make up to $142,800 will be subject to Social Security tax in 2021. Last year, this threshold was lower at $137,700. These changes are based on increases in average wages.
“Social Security tax rates remain the same for 2021—6.2% on employees and 12.4% on the self-employed,” said Marguerita Cheng, financial advisor at Blue Ocean Global Wealth, a financial firm.
Earnings limit Increases
Those who collect Social Security before their full retirement age are subject to the earnings test. If your income surpasses a certain limit you’re not entitled to receive 100% of your benefits. The benefits that are withheld are added back after you reach full retirement age.
This year, that limit is increased to $18,960, up from $18,240 in 2020.
“After reaching that limit, $1 will be deducted from your payment for every $2 that exceeds the limit, and if you reach full retirement age in 2021, you will be able to earn $50,520, ($48,600 in 2020),” Cheng said. “This is what is called forced suspension.”
President-elect Joe Biden’s proposals
As part of his proposals on retirement, President-elect Joe Biden has several changes in store for Social Security if he can get them through Congress.
The president-elect wants to increase the minimum Social Security benefits to 125% of the federal poverty level. In addition, he wants those who have only worked 10 years to be eligible for a prorated share of benefits.
Biden also intends to replace the CPI-W, the index which determines the cost-of-living adjustments for Social Security benefits with the CPI-E, which is based on spending for adults 62 and older and considers more health care costs. The CPI-W tracks households with at least half of their household income coming from clerical or wage-paying jobs.
Under Biden’s plan, caregivers who took care of children younger than 12 or family members with disabilities would also be eligible to receive Social Security credits with earnings equal to the average monthly wage.
Those who have been receiving retirement benefits for at least 20 years can expect a higher monthly check, too under Biden’s plan, if passed. Biden also wants to eliminate penalties for teachers who have earned retirement benefits from various sources and allow them to earn Social Security sooner.