Social Security will look slightly different in 2021.
When you think of retirement, you likely also think of Social Security.
Social Security benefits provide monthly income in retirement for those who qualify to receive based on their work history.
Although you should personally save and invest part of your income for retirement in a Roth IR, traditional IRA, or 401(k), Social Security can provide additional financial support.
The rules governing this government program tend to change a little each year.
According to a recent Fox News article titled “7 changes to Social Security in 2021,” 2021 will be no different.
What are changes you can expect to see in 2021?
The cost of living adjustment will increase each benefit by 1.3 percent.
What does this mean?
The average retired Social Security recipient will receive about $20 more per month than in 2020.
Increased full retirement age.
Full retirement age is when individuals can received the entire value of their monthly benefit.
The retirement age is increasing by two months in 2021.
Those born in 1959 will reach full retirement age at 66 years and 10 month.
Those who are born in 1960 or later will reach full retirement age at 67.
Greater taxes on high earners.
There will be an increase in the payroll tax earning cap.
The payroll tax accounted for $944.5 billion of the $1.06 trillion collected by Social Security.
All earned income up to $142,800 will be taxable in 2021.
About 6 percent of workers will likely hit this cap.
Larger monthly benefit for the wealthy.
In 2020, the greatest monthly benefit was capped at $3,011 for those who reached full retirement age.
This amount will rise to $3,148 per month in 2021.
Increase in disability income thresholds.
Are you eligible for disability benefits?
The income thresholds for eligibility for these beneficiaries will be higher in 2021.
Raised withholding thresholds for early filers.
The Social Security Administration discourages early filing for benefits.
Early filers receive a permanent reduction in their monthly benefit.
With an earnings test, early filers are also penalized with a withholding penalty.
If the filer earners income above the withholding threshold, some or all of the benefit will be withheld.
In 2021, the withholding threshold will be higher.
Filers will be able to earn up to $50,520 annually before the Social Security Administration will withhold $1 for every $3 earned above the threshold.
There is no earnings withholding when full retirement age is reached.
Higher qualifying income amount for a retirement benefit.
Qualifying for Social Security retirement benefits requires 40 lifetime credits.
Because only a maximum of four credits can be earned each year, you will need to work at least 10 years.
How are credits calculated?
One lifetime credit in 2021 can be earned with $1,470 of net income.
Your net income will need to be $5,880 to maximize your credits.
Taking time to review changes to Social Security will help you plan better for retirement.
Reference: Fox News (Oct. 19, 2020) “7 changes to Social Security in 2021”