5 Ways Social Security Will Change in 2021

Serious senior woman looking out the window
Photo by Solarisys / Shutterstock.com

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 annual changes affect people who are already retired as well as people who have yet to retire.

Following is a look at what will change for 2021.

1. Benefits will rise a smidge

Social Security recipients will see their monthly payments rise by 1.3%, as we reported in “Small Social Security Bump Sure to Disappoint Retirees — Again.” That cost-of-living adjustment, or COLA, translates to an extra $20 a month, based on the average Social Security retirement payment.

Many retirees won’t see that much extra Social Security income in 2021, however. It likely will be offset in part by higher Medicare premiums and deductibles, although the federal government has yet to announce exactly what those Medicare costs will be for 2021.

For some folks, the extra income may also be offset by higher taxes, as we detail in “How the 2021 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 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 full retirement age.)

This earnings limit increases annually as the national average wage index increases. For 2021, it will rise:

  • From $18,240 to $18,960 if you will reach full retirement age after 2021
  • From $48,600 to $50,520 if you will reach full retirement age in 2021
  • No limit on earnings if you are full retirement age or older for the entire year.

The Social Security Administration notes, however, that any benefits withheld due to your income exceeding the applicable earnings limit 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.

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 $137,700 in 2020 to $142,800 in 2021.

So, if you’re fortunate enough to earn more than $142,800 in 2021, you won’t owe Social Security payroll taxes on every dollar you earn.

The Social Security payroll tax rate itself will remain the same in 2021: 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 Count 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 $1,410 in 2020 to $1,470 in 2021.

5. The maximum benefit will increase

There is a limit to how much money a retiree can receive in benefits. It’s known as the maximum Social Security benefit.

Your maximum Social Security benefit depends on the age at which you retire. The maximum benefit for someone who retires at their full retirement age will rise from $3,011 per month in 2020 to $3,148 per month in 2021.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
10 Times You’re Right to Be a Cheapskate
10 Times You’re Right to Be a Cheapskate

Sometimes, clever shoppers can save money without sacrificing quality. Here are some great examples of how to do it.

It’s Worth Paying More for These 7 Things
It’s Worth Paying More for These 7 Things

Sometimes, the difference in quality makes it worthwhile to open your wallet a little wider.

15 Painless Ways You Can Cut Costs in 2020
15 Painless Ways You Can Cut Costs in 2020

Follow these tips to save — so you’ll have money for things that really matter.

5 Ways Anyone Can Save on Out-of-Pocket Health Care Costs
5 Ways Anyone Can Save on Out-of-Pocket Health Care Costs

Here’s how to lower your health care costs without skimping on care.

The 10 Best and 10 Worst States for Raising a Family in 2020
The 10 Best and 10 Worst States for Raising a Family in 2020

There are trade-offs no matter where you live. However, some states have big advantages when it comes to choosing a home for your family.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
11 Senior Discounts for Anyone Age 55 or Older
11 Senior Discounts for Anyone Age 55 or Older

There is no need to wait until you’re 65 to take advantage of so-called “senior” discounts.

20 Things That Are Actually Worth Stockpiling
20 Things That Are Actually Worth Stockpiling

You don’t need a year’s supply of toilet paper to survive an outbreak, but consider stocking up on these items.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

Can a Twice-Divorced Woman Claim Social Security Survivors Benefits?
Can a Twice-Divorced Woman Claim Social Security Survivors Benefits?

Understanding survivors benefits rules is the key to getting the most from your benefit.

These Are the 10 Worst Cars for Depreciation
These Are the 10 Worst Cars for Depreciation

Two types of vehicles are especially likely to see steep plunges in value.

Do This With Your Mask Before Thanksgiving Dinner
Do This With Your Mask Before Thanksgiving Dinner

Before you sit down at the year’s biggest feast, make sure to properly care for your mask.

Never Buy These 10 Things With Your Credit Card
Never Buy These 10 Things With Your Credit Card

Credit cards offer many conveniences and protections, but sometimes it’s simply smarter to keep the plastic tucked away.

13 Amazon Purchases That We Are Loving Right Now
13 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

10 Things I Always Buy at Trader Joe’s
10 Things I Always Buy at Trader Joe’s

From snacks to sweets to side dishes, stock your cart with these time-tested favorites on your next TJ’s run.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

There are easy high-paying majors available in the U.S. — and no bachelor’s degree is required. We’re here to help you find easy degrees that pay well.

8 Surprising Household Items You Can Sell for Fast Cash
8 Surprising Household Items You Can Sell for Fast Cash

Sometimes, the humblest household items are worth the most money.

Cut These 11 Expenses Now If You Hope to Retire Early
Cut These 11 Expenses Now If You Hope to Retire Early

Like the idea of financial independence? Part of the FIRE equation is cutting costs.

5 Ways Social Security Will Change in 2021
5 Ways Social Security Will Change in 2021

These adjustments will affect both workers and retirees in the new year.

These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

Stop Buying These 19 Things Online
Stop Buying These 19 Things Online

The internet has changed how we shop. But for some things, you’re still better off buying the old-fashioned way.

15 Products You Need — Even If You Didn’t Know It
15 Products You Need — Even If You Didn’t Know It

Discover some must-have products on Amazon that you didn’t even know you were missing.

7 Tips for Building an Emergency Food Supply
7 Tips for Building an Emergency Food Supply

A pandemic or natural disaster could leave you reliant on your existing emergency food supply. Is your pantry well-prepared for emergencies? Knowing what to stock up on for emergencies can be a difficult task and we’re here to help.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

11 Things Retirees Should Always Buy at Costco
11 Things Retirees Should Always Buy at Costco

This leader in bulk shopping is a great place to find discounts in the fixed-income years.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.