Every October, the Social Security Administration (SSA) reveals changes for the upcoming year. This is mainly done to adjust the benefits payable to be in line with the average cost of living. It is important for everyone to keep up with these changes to understand how it can affect their savings and spending decisions.
What is the Social Security increase for 2021?
The changes announced in October 2020 that affect Social Security include:
- Increase in payout — Social Security recipients in 2021 will receive a 1.3% increase of payout due to cost-of-living adjustment (COLA). This should help recipients keep up with inflation.
- Increase of taxable earnings — In 2020, workers paid a 6.2% Social Security tax up to $137,700 worth of income. In 2021, the rate is still 6.2%, but the maximum taxable earnings increased to $142,800.
- Increase of full retirement age — You can start claiming Social Security benefits at the age of 62, but at a reduced rate of what would be available at full retirement age. Full retirement age varies depending on what year you were born.
For example, if you turned 62 in 2020, your full retirement age would have been 66 years and 8 months. The SSA has increased the full retirement age by two months, meaning if you turn 62 in 2021, you can reach full retirement at 66 years and 10 months.
- Increase in disability benefits — Payments for single disabled workers increased to an average of $1,277 per month for 2021. For a disabled worker with a spouse or children, the increase averages up to $2,224 per month.
- Increase in earnings limits — You can work while collecting Social Security benefits, but some or all of your benefits may be withheld depending on how much you earn. The income limits for 2021 have increased.
In 2021, you may earn up to $18,960 in income while receiving Social Security benefits. After you exceed this limit, $1 will be deducted from your Social Security payment for every $2 that is above the income limit.
For those who reach full retirement age in 2021, you can earn up to $50,520, and will have your Social Security payments reduced by $1 for every $3 you earn over your income limit. In the year following your full retirement, there is no earned income limit.
Talk to a ProVise CFP® professional about Social Security in your financial planning
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