As this year comes to an end and a new year is about to begin, you might be wondering about the changes ahead. Whether retirement is far off or just around the corner, it’s important to get a head start on budgeting, planning, or saving. Social Security payments will increase to 1.3% in the next year, but it doesn’t end there. Several other changes are taking place that could affect how much you receive or pay into the system. To help take the mystery out of what lies ahead, we dove in and put a list together of what you can expect to see in 2021.
In the upcoming year, expect to see larger checks for retired and disabled workers. The average disabled worker should expect to see monthly benefits increase by $16, and the monthly Social Security benefit will increase by $20 for the average retired worker. Married retired couples who collect benefits will see an increased estimate of $33, or $2,596 per month in 2021. The 1.3% Social Security COLA (Cost of Living Adjustment) for 2021 has lowered from 1.6% in 2020.
Higher Tax Cap
The tax cap is the limit to which an individual might be required to pay government taxes, often referred to as “capped.” For example, in 2020, the maximum amount of taxable earnings capped at $137.7k. In 2021, earnings subject to Social Security tax will increase by $5,100. Earnings above the amount of $142.8k are not subject to SS taxes for the following year.
Individuals aged 65 and under can earn up to $18,960 before their benefit would be temporarily withheld for every two dollars earned above the limit. During the year that you hit full retirement age, your Social Security earnings limit jumps to $50,520 a year or $4,210 a month as of 2021. The penalty also decreases to $1 withheld for every $3 in excess earnings. Once retired, there will be no penalty for working and collecting Social Security benefits at the same time.
Older Retirement Age
Those who turn 62 in the year 2021 will have to wait until they reach older retirement age than current Social Security beneficiaries to claim their full retirement benefit. The full retirement age will increase to 66 and 10 months for individuals born in 1959. Those who are still working and claim Social Security benefits before their full retirement age will see a 29.17% reduction of their maximum benefit.
It’s important to keep these upcoming changes in mind when thinking ahead for the new year. When you’re getting ready to retire, getting started with an industry professional can save you a lot of time and headache. Don’t go into your retirement with fear of not having enough money. For many individuals, retirement savings plans or figuring out exactly how to retire can be daunting. RITA provides free educational resources, a dedicated team of IRA Custodians, and much more. Contact us today with any questions or to get started on this next journey of your life.