[NFBofSC] 7 Changes to Social Security in 2021

[Steve Cook]

7 Changes to Social Security in 2021         

There isn't a social program in this country that bears more importance to
the financial well-being of seniors than Social Security. Each month, nearly
65 million people receive a Social Security benefit, and more than 46
million of them are retired workers. Of these retirees, more than 3 in 5
rely on their monthly payouts to account for at least half their income.

 

It's also a dynamic program. Despite laying a financial foundation for those
who can no longer provide for themselves, the Social Security program
undergoes a number of changes every year. It just so happens that these
updates were unveiled by the Social Security Administration (SSA) this past
week.

Here's a closer look at the seven biggest changes to Social Security in
2021. 

 

1.Recipients are going to get more money

October is the most important time of the year for Social Security
recipients, primarily because it's when the SSA announces the cost-of-living
adjustment (COLA) for the upcoming year. Think of COLA as the "raise" that
Social Security beneficiaries receive that's designed to keep their benefits
on par with inflation.

 

For 2021, Social Security beneficiaries are looking at a good news/bad news
scenario. The good news is simple: You're getting more money. The SSA
announced a 1.3% COLA for the upcoming year, which for the average retired
worker is going to translate into an extra $20 a month, working out to an
estimated monthly payout of $1,543 a month by January 2021. Considering that
prices for goods and services headed lower between March and May as a result
of the coronavirus disease 2019 (COVID-19) pandemic, a 1.3% COLA is a
victory for the program's 64.8 million recipients. 

 

The bad news is that 1.3% ties for the second-smallest positive COLA in
history. But with inflation in shelter and medical-care services outpacing
1.3%, senior citizens are going to see the purchasing power of their Social
Security income decline, once again. 

 

2. The full retirement age is inching higher

The only change we knew for certain that would happen in 2021 was an
increase in the full retirement age (which is also known as "normal
retirement age" by the SSA). A person's full retirement age is the age when
they can receive 100% of their monthly payout, as determined by their birth
year. 

 

In 2021, the full retirement age is going to inch up higher by two months,
to 66 years and 10 months for people born in 1959 (i.e., beneficiaries who
can become newly eligible next year). Put simply, claiming benefits at any
point prior to reaching your full retirement age means accepting a permanent
reduction to your monthly payout. Conversely, waiting to take benefits until
after 66 years and 10 months for workers born in 1959 can pump up retirement
benefits.

 

Social Security's full retirement age will peak at age 67 in 2022 for anyone
born in 1960 or later.

 

3. High earners can expect to pay more taxes

Keep in mind that changes to the Social Security program don't just affect
people currently receiving benefits. One of the biggest updates next year is
an increase to the payroll tax earnings cap.

 

The payroll tax is Social Security's workhorse. In 2019, it generated $944.5
billion of the $1.06 trillion collected by the program. 

 

Revenue is brought in by applying a 12.4% tax on earned income (wages and
salary, but not investment income) ranging between $0.01 and $137,700, as of
2020. Note, all earned income above $137,700 in 2020 is exempt from the
payroll tax. 

 

In 2021, all earned income up to $142,800 will be taxable, representing an
increase of $5,100. For the roughly 6% of workers who are expected to hit
this cap, we're talking about an increase in payroll tax of up to $632.40
next year.

 

If you're wondering how the SSA came up with $142,800 as next year's cap, it
has to do with the year-over-year increase in the National Average Wage
Index (NAWI). Between 2018 and 2019, the NAWI rose from $52,145.80 to
$54,099.99 -- a gain of 3.74%, or 3.7% when rounded to the nearest tenth of
a percent. Next year's tax cap is 3.7% higher than the $137,700 in 2020.
It's that simple. 

 

4. The wealthy can pocket a bigger monthly benefit

Though high earners will be tasked with opening up their wallets a bit wider
in 2021, well-to-do beneficiaries can also expect to receive more. After the
SSA capped monthly retirement benefits at $3,011 for persons of full
retirement age in 2020, the maximum payout at full retirement age is
increasing to $3,148 a month in 2021. That's an extra $1,644 a year for
wealthy workers.

 

To net this maximum monthly payout, workers would need to have done three
things:

Waited until their full retirement age to claim benefits.

Worked at least 35 years, as every year less of 35 worked results in a $0
being averaged into their eventual monthly payout. 

Hit or surpassed the maximum taxable earnings cap in each of the 35 years
the SSA takes into account when calculating a person's retirement benefit.

 

A check next to all three of these criteria allows a retiree to net the
maximum monthly benefits.

 

5. Disability income thresholds climb higher

There's no question that Social Security's primary job is to financially
protect our nation's retired workforce. But don't overlook the fact that 9.7
million beneficiaries are receiving a monthly payout from the Social
Security Disability Insurance Trust. In 2021, the income thresholds where
benefits cease to disabled beneficiaries will climb higher. 

 

For example, non-blind disabled beneficiaries can earn up to $1,260 a month
in 2020 without having their Social Security payouts stopped. Next year,
this threshold is increasing $50 a month to $1,310. This means non-blind
disabled beneficiaries are able to earn up to $600 extra annually without
losing their benefits.

 

The increase is even larger for blind disabled beneficiaries. Folks who fall
into this category will be allowed to earn up to $2,190 a month in 2021 --
$80 a month higher than the 2020 threshold -- without having their benefits
stopped.

 

6. Withholding thresholds for early filers receive a boost 

Social Security has a number of ways it penalizes early filers. None is
arguably more confusing or surprising to retired workers than the retirement
earnings test. Put simply, the retirement earnings test allows the SSA to
withhold some or all of an early-filer's benefit if they earn above a preset
income threshold. In 2021, these income thresholds are heading higher. 

 

For instance, early filers who won't reach their full retirement age in 2020
are only allowed to earn up to $18,240 a year ($1,520 a month) before $1 in
benefits can be withheld for every $2 in earnings above this threshold. In
2021, early filers who won't reach full retirement age can earn up to
$18,960 annually, or an extra $60 a month ($1,580/month) before withholding
kicks in. 

 

Early filers who will reach full retirement age in 2021 will see a boost in
the withholding threshold, too. Next year, early filers who hit their full
retirement age at some point during the year will be allowed to earn up to
$50,520 ($4,210 a month) before $1 in benefits is withheld for every $3 in
earnings above this threshold. For those who are curious, that's an increase
of $160 a month from 2020 levels.

Take note that the retirement earnings test is no longer applicable once you
hit your full retirement age (regardless of when you claimed benefits), and
withheld benefits are returned to recipients in the form of a higher monthly
payout after hitting full retirement age.

 

7. You'll have to earn more to qualify for a retirement benefit

Last but certainly not least, working Americans are going to have to try a
bit harder to qualify for a Social Security retired worker benefit.

Despite what you might have heard, Social Security isn't simply given to
someone for being born in the United States. In order to receive a
retirement benefit, you'll need to have earned 40 lifetime work credits, of
which a maximum of four credits can be earned each year. These credits are
awarded according to an individual's income in a given year.

 

For example, workers received one lifetime work credit in 2020 with $1,410
in earned income. Put another way, if a worker nets at least $5,640 in
earned income ($1,410 X 4) this year, they'll receive the maximum four
credits.

 

In 2021, it'll take $1,470 in earned income to earn one lifetime work
credit, or $5,880 for the full year to maximize your Social Security work
credits.

 

Though folks will have to work a bit harder to ensure a retirement benefit
from Social Security, the bar to qualify is set relatively low. 

 

The $16,728 Social Security bonus most retirees completely overlook

 

If you're like most Americans, you're a few years (or more) behind on your
retirement savings. But a handful of little-known "Social Security secrets"
could help ensure a boost in your retirement income. For example: one easy
trick could pay you as much as $16,728 more... each year! Once you learn how
to maximize your Social Security benefits, we think you could retire
confidently with the peace of mind we're all after.

 

 

 

Steve Cook

District 2 State Board Member of the National Federation of the Blind of SC

1st Vice President of the Computer Science & Technology Division of the
National Federation of the Blind of SC

Board member at large of the Columbia chapter of the National Federation of
the Blind of SC

The National Federation of the Blind of SC owns and operates Rocky Bottom
Retreat & Conference Center.  Below is a link to read more about Rocky
Bottom and to make a reservation for a mountain retreat!

Rocky Bottom Retreat  <http://rockybottomofsc.com/> & Conference Center

Please join the National Federation of the Blind of SC on Face Book at any
of the below links!

National Federation of the Blind of SC on Face Book
<https://m.facebook.com/NatFedofSouthCarolina/> 

Computer Science
<https://m.facebook.com/Computer-Science-Technology-Division-of-the-NFB-of-S
C-343263089815304/> & Technology Division of the National Federation of the
Blind of SC

Rocky Bottom Retreat  <https://m.facebook.com/RockyBottomofSC/> & Conference
Center 

South Carolina Association of Blind Students

South Carolina Parents of Blind Children
<https://m.facebook.com/groups/375092969314880?_rdr> 

 

The National Federation of the Blind welcomes all blind people, parents of
blind children, blind students, those losing vision, and more. We are a
family of members and friends that knows that blindness is not the
characteristic that defines you or your future. You can live the life you
want.

 

How to Join

Federation of the Blind is to attend a chapter or division meeting in your
local area. You can find your nearest chapter or division meeting by
reaching out to your state affiliate president. Membership in a chapter or
division will automatically grant you membership in your state affiliate and
the national organization. 

 

Come join us! <https://www.nfb.org/get-involved/join-us> 

 

 

 

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