Social Security

If you are one of the many millions of Americans who receive Social Security benefits, you may have noticed that your benefit checks might be a little larger starting with January, 2021.  This is due to the annual cost-of-living adjustment.  Here’s a snapshot of the increases:

• Benefits to retired workers see an average increase of $20 per month for an individual and an average increase of $33 per month for a couple.  If you retired at full retirement age, the average increase is $137.
  Keep in mind that if you began collecting benefits before your full retirement age, you are receiving a reduced rate, hence the difference in the increase.   

• If you are a widow or widower, your average increase is $19 per month and with two children there is an average increase of $39 per month.  Here again, benefit amounts are based upon the age benefits began to be paid.

• Individual disabled workers received an average increase of $16 per month while a disabled worker with spouse and kids received an average increase of $29 per month. 
  
  
• If receiving SSI as an individual, the average increase is $11, while a couple has an average increase of $16 per month.  SSI (Supplemental Security Income) helps to meet basic living needs for individuals with little or no income.  This program is not funded by Social Security payroll taxes, but with general tax revenue.

In discussing the benefits being paid, if you are still working, don’t worry. The percentage of payroll taxes withheld from your paycheck doesn’t increase by the same percentage.  Your employer will continue to pay 6.2 percent and you will pay 6.2 percent based on eligible wages.  Of course, if you are self-employed, you must pay the entire 12.4 percent.  Where the impact occurs is in the maximum amount of earnings subject to tax.  In 2021, the cap is $142,800, up from $137,700 in 2020.  Any earnings above $142,800 are not subject to Social Security taxes.

If you are still employed, but have reached an eligible age before your full retirement age and wish to collect SS benefits and wages, your benefits are based upon a reduced formula.  If you earn more than $18,960 annually or $1,580 monthly, your benefits will be reduced by $1 for every $2 earned above the thresholds.  In the year you reach your full retirement age, the earnings limit increases to $50,520 per year and the reduction is $1 for every $3 earned above $50,520.  However, the month you reach your full retirement age, the earnings limit goes away and there is no reduction in benefits.  Careful consideration should be made when weighing the options of working and receiving SSA benefits at the same time.  Keep in mind that when you reach the age of 70 and if you are still working, you should begin to claim benefits as there will be no increase in your monthly benefit amount for additional work credits or earnings.  If your full retirement age is 66 years, waiting until age 70 to collect will increase your benefits by 32%. 

Happy Collecting.