Social Security Retirement benefits are set to increase in 2020- a modest 1.6% increase for the average retired worker that adds an extra $24 per month to their retirement check. Retired couples will see their combined benefits grow to $40 per month. This cost of living (COLA) increase is one of the smallest over the past twenty years and will help offset 2020’s increasing Medicare Part B and Part D premiums.
The most significant changes happening to Social Security retirement in 2020 will be the increasing social security payroll taxes (FICA) for workers and the increasing age for full retirement benefits. Here’s what you need to know:
Social Security tax on wages will increase by 3.6% in 2020, with the maximum amount of wage earnings ($137,700) subject to the increase. The maximum Social Security tax paid per worker in 2020 will be $17,074.80. Half, or $8537.40, is withheld over the course of the year and the employer pays the other half. Self-employed individuals will continue to pay both parts of their social security tax payment. Why the increase? The boost bases off the Consumer Price Index and a different index measuring wage growth; both trigger increases in the tax.
The Full Retirement Age increases by two months to 66 years and eight months to receive ‘full retirement benefits’ and not a decreased monthly payment. This increase in age for full benefits is only the tenth time in eighty-five years that the full benefits age has increased. The full retirement age will change again to age 67 years in 2022 for those born in 1960 and later.
Both of these changes in increasing tax collection and raising the benefits age are not enough to offset a deficit in the system from increasing longevity and the disparity of taxes from fewer American workers paying SSI taxes due to a declining population. When Social Security retirement benefits started, the life expectancy of a male worker born in 1940 was 60.8 years for men, and 65.2 years for women. As of 2017, the life expectancy for a baby born in the U.S. was 78.6 years.
• The decision to start taking Social Security Retirement benefits or delay payments until one’s full retirement age can make the difference in thousands of dollars over a lifetime:
• Working and taking payments before full retirement age will result in being docked $1 in benefits for every $2 in wages above $1520 per month ($18,240 per year).
• Once the full retirement age, a retiree can make as much income as they want without losing benefits.
Only 4% of retirees claim Social Security benefits at the optimal time (Full retirement age), leaving $3.4 trillion in unclaimed benefits. Together we can decide if waiting to take full retirement benefits is in your best interest. Assessing your benefits and retirement savings is the only way to determine what is best for you. It’s imperative to gather accurate information before making a final and unchangeable decision regarding benefits.