Social Security recipients likely already know that their benefits get a bump almost every year to counteract the effect of inflation. But that cost-of-living adjustment is just one of several annual tweaks to the Social Security system.
These tweaks impact both retirees and workers. Following is a look at what will change for 2020.
1. Benefits will rise a smidge
Social Security recipients will see their monthly payments rise by a cost-of-living adjustment of 1.6%, as we reported in “Modest 2020 Social Security Bump Sure to Disappoint Retirees.” That translated to an extra $24 a month, based on the average Social Security retirement payment.
Many retirees won’t see that much extra Social Security income in 2020, however. It will be offset in part by higher Medicare premiums and deductibles.
For some folks, the extra income may also be offset by higher taxes, as we detail in “How the 2020 Social Security Bump Will Cost Some Retirees.”
2. The earnings limit for working retirees will edge up
If you claim Social Security retirement benefits before reaching your full retirement age (FRA) and also continue working, the Social Security Administration will withhold some of your benefits if your income exceeds what’s known as the earnings limit. (There is no penalty for earnings made while working after you reach FRA.)
This earnings limit increases annually as the national average wage index increases. For 2020, it will rise:
- From $17,640 to $18,240 if you will reach full retirement age after 2020
- From $46,920 to $48,600 if you will reach full retirement age in 2020
However, the SSA website notes that any benefits withheld for this reason are not “lost.” Once you reach your full retirement age, your monthly benefit is increased permanently to account for months in which benefits were withheld.
To learn more about this topic, check out “The Danger of Working While Collecting Social Security.”
3. The tax cap on workers’ income will increase
Here’s another annual adjustment based on the increase in average wages: The maximum amount of a worker’s income that is subject to Social Security payroll taxes will rise from $132,900 this year to $137,700 next year.
So, if you’re fortunate enough to earn more than $137,700 next year, you won’t owe Social Security taxes on every dollar you earn.
The Social Security payroll tax rate paid by workers (which supports the benefits workers later receive) will remain the same in the new year: 6.2% for employees (employers pay another 6.2%) and 12.4% for the self-employed.
4. The earnings required for one credit will increase
Not everyone is eligible for retirement benefits. As we explain in “6 Types of People Who Can’t Rely on Social Security“:
“To receive Social Security retirement benefits, most people need to accumulate at least 40 ‘credits’ during their working lifetime, according to the U.S. Social Security Administration (SSA). Currently, you can earn up to four credits per year if you work and pay Social Security taxes.”
The earnings required for you to receive one Social Security credit, also known as one-quarter of coverage, will rise from $1,360 this year to $1,410 in the new year.
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